Tata Coffee – Dark Horse Series – 3

Introduction

Coffee is grown in the regions with the rainfall of 2500 to 4000mm rainfall in a spread of 100 days. This is followed by the dry period of the same duration. This is suitable for the coffee growing areas for the cultivation of different varieties of coffee.

Key Markets and Export Destinations

  • India is the third-largest producer and exporter of coffee in Asia and the sixth-largest producer and fifth-largest exporter of coffee in the world.
  • The country accounts for 3.43 percent (2016-17) of the global coffee production.
  • The post-monsoon coffee production in FY 2016-17 is estimated at 316,700 million tonnes (MT), as against 348,000 tonnes in FY 2015-16.
  • Over April 2017-March 2018 (provisional), coffee exports from India stood at 181,286 tonnes valued at US$ 454.59 million, registering a year-on-year growth of 12.70 percent.
  • Italy, Russia, Germany, Belgium, Turkey, Slovenia, Jordan, Australia, Greece, and Poland are the leading importers of Indian coffee.
  • Of the total coffee produced in India, ~70 percent is exported and ~30 percent is consumed domestically.

COFFEE BOARD OF INDIA

The Coffee Board of India is engaged in the research, development, extension, quality upgrade, market information, and domestic and international promotion of Indian coffee. Since 2002, the board has been conducting the India International Coffee Festival, a biennial event held in India in collaboration with other industry stakeholders.

The retail market in India is growing at a speed of 17% CAGR and is expected to touch 1300bn by 2020. Out of this pie, Food and grocery account for 66.3% of the revenue. With the rising per capita income and e-commerce spread, people have become brand conscious and are ready to the price for the brand they like. B2C companies are taking the advantage of this and aggressively market their product among all the customer segments.

retail info graph

Source: IBEF

Taking the advantage of the market condition, many consumptions oriented companies like Tata Global Beverages, Future Group, Godrej consumer etc. have aggressively expanded their product portfolio, well supported by innovation, marketing, and geographical expansion as well.

Company Background

Tata coffee is the subsidiary company of Tata Global Beverages Ltd. and Asia’s largest coffee company. Tata coffee produces 10000 metric tonnes of coffee. Company bags the award of “Best Coffee Grower In India” at the second annual Ernesto illy International Coffee Awards. Tata coffee is the 2nd largest exporter of the instant coffee in India. The company has a capacity of producing 10000MT of coffee at its 19 estates across the country. Over and above the coffee, the company is the largest producer of Pepper in India.

Company financials

The company is posting net profit quarter on quarter. Its OPM(Operating Profit MArgin) is also looking good. Its last quarter (Dev’17) OPM is 17.31% which is lower as compared to Q2 and Q1 OPM. This is due to decreased prices in the commodity market. Below financials speaks about the consistent performance of the company.

Company’s last year EPS was Rs.8.09 against which for the 9 months EPS is around Rs. 5.

 

Tata coffee ltd

 

The stock price has travel 84 (June’16). to 180 (Nov’17). Since Nov’17, there has been a constant fall in the price. If you check the last 1-year chart, the story is different. There is a huge spike in stock price. With the new leadership in Tata Group, the management is all set to take the company to the new high.

 

Tata coffee chart

 

An outlook of the company

Overall, Tata Coffee as a company is not bad. The company has strong products, assets, and manufacturing facilities. Company’s fundamentals are good and constant. Sometimes, it takes time to leverage the company’s assets to convert into profit and reflect it into its stock price. The company has announced of the 5000MT coffee plant at Vietnam which will start production by March 2019.

I feel the company has great potential, strong asset, good product portfolio and a good leadership under the brand Tata. Such company needs some time to bloom. I see Tata Coffee a completely different company altogether in next 3 years of time.

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