Tata Coffee

A subsidiary of Tata Global Beverages, which holds 57.48% stake, Tata Coffee has gone cold after its set of disappointing numbers for Q1FY15. A 45% (YoY) drop in its consolidated net profit at Rs.42 crore did not go down too well with the traders. Its net revenue also showed a fall – 12% down at Rs.374 crore. The company has explained that the lower profits in this quarter primarily reflect the lesser crop available for sale in the plantations business, on account of the lower production of coffee, tea and pepper during the previous season, which had witnessed distinctly unfavourable weather conditions.

The company has called this an “off-cycle” year which means seasons where coffee trees have lower yields. It is a seasonal thing and the company is facing the brunt of the same. The only solace was that its instance coffee business did well good volume growth of 20% (YoY) at 1836 tonnes. The instant coffee business reported a topline of Rs.86 crore v/s Rs.76 crore in previous Q1, driven mainly by sales to newer geographies. In terms of coffee production worldwide, this year is expected to see a sharp drop due to drought conditions in Brazil, the largest coffee grower in the world’ consequently prices are expected to rise.

The strategy of the company is to gradually move away from commodity price volatilities and concentrate more on value added, high margin products and its instant coffee is the step in that direction. Its new plant at Theni in Tamil Nadu, which is a premium coffee extraction plant is expected to help the company change its course. The company intends to step up the revenue share from this business to 75% in the next 2-3 years, from the current figure of close to 55%. Instant coffee is expected to thus provide the hedge against coffee price and production fluctuations. The other good news is that over 90% of its instant coffee and 75-80% of green coffee is exported, which means on the forex front, with a stable rupee, it is sitting pretty.