Tata Coffee sees hardening of prices, revenue

Bets on speciality coffee to drive growth in 2012-13

Bangalore-based Tata Coffee Ltd, one of the top five exporters of the commodity from India, is looking to reap the benefits from the reversal of prices in international markets, during the second half of this financial year. The company, the largest producer of Arabica coffee in India, expects these prices to harden in the second half. It is also betting on speciality coffee (also called gourmet or premium coffee) to drive growth during 2012-13.

“Arabica prices registered significant increase in calendar year 2011 and have since corrected in 2012. The downturn in the New York terminal has been partly absorbed by the premium obtained on speciality coffee and the impact on Tata Coffee has been largely protected in 2012-13,” said Hameed Huq, managing director.

The market appears to have stabilised and has factored in the largest harvest out of Brazil in the current year. “We expect prices will harden in the second half of this financial year. The impact on Tata Coffee has been largely protected in 2012-13,” he said.

The company exports instant coffee to Japan, Russia, Southeast Asia and to the CIS countries. This year, Huq said, global production will be evenly balanced, as output in Colombia is lower, even as production in Brazil and Vietnam will be higher.

Arabica prices are currently Rs 8,200 per bag (a bag is 50 kg) as against Rs 11,000 per bag in January, a drop of 26 per cent. The decline in these prices is attributed to relatively lower demand in the international market, a record crop in Brazil and economic crisis in the Euro zone. The Brazilian crop size is estimated at 50.5 million bags.

During 2011-12, Tata Coffee exported 21,052 tonnes, valued at Rs 298 crore, about 6.5 per cent of India’s exports. Over the first five months of the financial year, April-August, the company exported 10,034 tonnes, about 6.8 per cent of total exports.

Huq said the company was in the process of expanding its instant coffee capacity by 31 per cent, to 8,500 tonnes from 6,500 tonnes. The Rs 55-crore expansion will be completed during the next financial year, 2013-14.

On the benefits from a depreciating rupee, he said, “A large part of our green coffee and almost all of instant coffee is traded in dollars. Thus, the depreciation of the rupee against the dollar has benefited our margins. As very little quantity is sold in the domestic market, it has been very beneficial for us ever since the rupee started depreciating.”

He also downplayed the effect of a Euro zone crisis on the company’s exports to the region. “As a company, Tata Coffee has markets all over the world and the Euro zone accounts for a very small portion of our sales. Thus, the European crisis has not impacted Tata Coffee in any significant way. Also, coffee consumption has not shown any major decline in the European nations,” he said.

For the first quarter ended June 30, Tata Coffee reported an over two-fold increase in consolidated net profit at Rs 31.8 crore, on account of better sales in the three-month period. It had posted a net profit of Rs 13.6 crore in the April-June period in 2011.