Tata Coffee eyes acquisition in Europe to grow instant coffee business

The company scouting for suitable firms in Europe and plans to close the deal some time this year

Tata Coffee, India’s second largest producer of instant coffee, is aggressively looking to expand its instant coffee business through an inorganic route. The company is scouting for suitable companies in Europe and plans to close the deal some time this year, a top company executive said.

“We have just completed expansion in our instant coffee business by increasing the extraction capacity by 33% to 8,500 tonnes at Theni in Tamil Nadu at an investment of Rs 80 crore. We are now looking at further expansion through an acquisition, mainly in Europe, which is nearer to our customers,” Hameed Huq, Managing Director, Tata Coffee Limited said.

He said the company is looking at acquisition as part of its vision to become a Rs 1,000 crore company by 2015. For the year ended March 31, 2013, it recorded 17.7% growth in topline to touch Rs 598 crore. Instant coffee contributes about 55% of its total sales presently.

“To achieve Rs 1,000 crore turnover it is essential for us to acquire a company in Europe and we have time till 2015 to achieve this target,” Huq said.

Simultaneously, Tata Coffee is also exploring an option of setting up a greenfield instant coffee (also known as freeze dried coffee) processing unit in Europe with a capacity of 4,500 tonnes, he said, provided an acquisition does not come through. The company is looking at an investment of close to Rs 400 crore for the proposed expansion.

“Our strategy is to be present nearer to our customers. There is a huge potential to grow our business in European countries and we want to acquire a company there. There are some good opportunities available for us to acquire companies there. We have seen various facilities but yet to finalise any specific target company at the moment,” Huq told Business Standard.

The company wants to have its new plant in Europe, which will be nearer to its customers and source coffee from around the world.

He said, with the completion of expansion at Theni facility in Tamil Nadu, Tata Coffee has emerged as the second largest instant coffee maker and the capacity has increased to 8,500 tonnes per annum. The company imports almost 90% of the required coffee beans from across the world for this facility.  

Annually, total global soluble trade is estimated to have grown from less than 360,000 tonnes in 2005 to almost 440,000 tonnes in 2011, equivalent to an average annual growth rate of 4%. Soluble trade is dominated by spray-dried products, freeze dried exports have reached close to 95,000 tonnes per annum, around 23% of global soluble trade, according to LMC International, the UK-based independent economic and business consultancy for the agribusiness sector.

Western Europe, Eastern Europe, East Asia, ASEAN and North America (including Mexico) are the most important markets for instant coffee. Tata Coffee has recently reduced its dependency on Russia and has turned focus to West Africa, Japan and South East Asian countries, Huq said.

By increasing its capacity, Tata Coffee wants to compete with global instant coffee players like Kraft and Nestle.