Business Outlook
Tata coffee, a $90 billion Tata group company, is one of the world s largest integrated coffee plantations. The recent joint venture between Tata and Starbucks Coffee has brought an interesting turn of events for the company. Starbucks Coffee will source its processed coffee for its Indian retail stores as well as stores in other strategic geographies. The company is also engaged in plantation of Pepper, Cinnamon, Oranges etc. The company also forayed into wood composites and plywood business under the brand name Tata Conswood.
Financial: Quarterly
The net profit in December quarter is better than the same quarter last year by 20.8% even though the sales have remained flat. This points at improving net profit margin.
Financial: Annual
The sales have grown at a healthy 5 year CAGR of 9.6%. The bottom line has grown at a very impressive 27.7% CAGR over the last 5 years. The trailing quarters suggest that this financial year will see the net profit rise more than 45% as compared to last year.
Fundamental
Pointers for companies expected performance over next few years:
The price trend for pepper and cinnamon in the past quarters will lead to improved top-line this financial year.
Tata coffee has started harvesting wind energy for its coffee roasting plant which will help reduce costs and improve profit margins.
Tata coffee has had business relations with Starbucks Coffee since 2004 and both companies have since worked together at improving coffee harvesting and processing techniques.
Starbucks coffee and Tata have started a state of the art coffee roasting plant in Coorg, Karnataka. This plant is capable of 375 tonnes per annum output.
Tata coffee will supply for all the Tata Starbucks retail stores in India. They have opened 4 stores in Mumbai and 3 in Delhi. Though they are tight lipped about the number of stores they plan to open in India; from one of the earlier press releases it is expected they will open 50 stores in Phase 1 in India. This can be expected to happen over next 8-12 months.
Apart from supplying to Indian retail stores, the new plant will also be supplying to Starbucks coffee stores in some other geographies. Most likely these will be Asian countries. However, since Europe also imports Arabica and Robusta coffee varieties from India (Coffee day ventures is one of the big coffee exporters to Europe) it can be expected that Tata coffee will be supplying to some of the European locations soon too.
Starbucks coffee expects India to be one of its top 5 markets. Hence, over the next few years we can expect a huge increase in store outlets in the country. This will further add to Tata coffee s top-line revenue.
Coffee consumption trend has been on a upward trend in India in the past 5 years, especially in Tier 1 and Tier 2 cities. This is evident by the 1400 stores operated by Caf coffee day, 200 stores operated by Barista, 100 for Costa coffee in these cities. Starbucks Coffee has a much higher brand value and may comfortably eat into market share of these coffee shops in metropolitan cities.
Tata coffee is a regular dividend payer. Expect a dividend of around Rs.14-16 per share this calendar year (usually around August).
Value at Risk (VaR)
The average monthly return in Tata coffee scrip since Jan 2010 is 4.87%. The monthly value at risk using 95% confidence interval indicates a maximum probable loss of -20.75%. However in last 30 day period (Jan 27 to Feb 26), the stock lost 12% and has again turned up. The loss may have been due to the volatility arising as we approach union budget announcement. Historically, the downside should be limited at this juncture.
Long Term Bet
Scenario analysis using different growth rates for revenue and earnings suggest stock price of Rs.3000-4100/share (or adjusted) by FY18.
Business Outlook Tata coffee, a $90 billion Tata group company, is one of the world s largest integrated coffee plantations. The recent joint venture between Tata and Starbucks Coffee has brought an interesting turn of events for the company. Sta...
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