We are delighted to share that Tata Coffee (Value Pick - Aug'12) is appreciated by almost 70% since our recommendation. Our equity analysts published Value Pick - Aug'12 research report and shared it with all Value Picks members on 26 Aug'12. Tata Coffee was recommended at price of Rs. 965 and stock has already achieved its target price in Nov'12.
Tata Coffee is Asia’s largest integrated Coffee Plantation Company and the largest grower – exporter of green coffee from India. The Company is the second largest exporter of instant coffee in the country and exports to countries in Europe, Asia and North America. Eight O’ Clock coffee is a segment leader in the US retail market. It is the only company to have various certifications like Rainforest, UTZ and SA800. As per Nielsen, the Company’s flagship brand, Eight O’ Clock (EOC) coffee continues to be the No. 1 whole bean Coffee brand in the grocery segment in USA and 4th in the overall branded segment. EOC has entered into the fast growth single serve coffee segment in the US and this augurs well for the future. Domestic coffee consumption has been growing steadily over the last several years driven by double digit growth in the instant coffee category and out of home consumption. Tata Coffee is gearing up to supply coffee beans to cafes and the tie up with Starbucks will propel this growth in the coming years.
Tata Coffee has a hand in every aspect of the coffee making process, with business activities ranging from growing and curing of coffee and tea to the manufacture and marketing of value-added coffee products. Tata Coffee grows coffee on its own estates, processes the beans, exports green coffee, manufactures and exports Instant Coffee and retails coffee with its own branding in the domestic market.
The Company’s two main products are:
b) Robusta Coffee
To improve the quality of its Coffee products, the Company is importing technology from Netherlands. With this the Company would be moving in the premium segment which would boost its margin profile.
The Company is now focusing towards producing Speciality Coffee. The Company has also developed new state of the art pulping facilities in Coffee estates
Recent Developments
Tata Coffee modern roastery to serve beans to Starbucks – July 26, 2012
- Utz - Efficient Farm Management Practices.
- Rainforest Alliance - Bio-diversity (For Environment Protection)
- SA8000 - Labour standard certification
iv) Improvement in Sales & CAGR
i) Tata Coffee is Asia’s largest coffee plantation company and the 3rd largest exporter of instant coffee in the country. It exports green coffee to countries in Europe, Asia, Middle East and North America. We believe that demand of premium coffee will remain strong and company will do well with its new entrant - Washed Robusta in lucrative US market.
ii) As per our estimates, Tata Coffee can deliver total sales of Rs 630 crores and PAT of Rs 98 crores, resulting in EPS of Rs 52.5 in FY 2012-13. This translates in an expected PE multiple of 18.4 times based on FY 2012-13 earnings.
iii) We expect Tata Coffee net profit margin will be maintained at 15-16%. Tata Coffee operating margins is better to peers group companies and can improve further considering robust demand for its premium product range and recent agreement with Starbucks to source and roast premium coffee beans.
iv) Tata Coffee Ltd has declared good numbers in first quarter of current financial year registering sales growth of 26% and profit growth of 89% compared to same quarter - last year and is expected to perform better in coming quarters.
v) On equity of Rs. 18.68 crores the estimated annualized EPS for FY 12-13 works out to Rs. 52.5 and the Book Value per share is Rs. 244.82. At a CMP of Rs. 964.70, price to book value is 3.94.
Saral Gyan Team recommends “BUY” for Tata Coffee at current market price of 964.70 for a target of Rs. 1320 over a period of 12-18 months.
Buying Strategy:
50% at current market price of 964.70
50% at price range of 885-900 (If stock price falls during market correction)
Regards,