Hameed Huq, managing director, Tata Coffee says that the Arabica prices, which peaked last year has corrected substantially from 270 cents per pound to 180 cents per pound levels. He also says that the Arabica prices have bottomed out and there are chances of upward correction in the second half of the fiscal.
“The next big step for Tata Coffee would be a meaningful acquisition both in the soluble coffee and also in Roast and Ground arena,” said Huq.
Below is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video.
Q: Can you provide information about coffee prices and what is the trajectory you are expecting in near-term?
A: The Arabica prices, which peaked last year has corrected substantially from 270 cents per pound to 180 cents per pound levels. We believe that the Arabica prices have bottomed out and there are chances of upward correction in the second half of the fiscal.
On the other hand, the Robustas prices where Tata Coffee has large production base have never gown down. Inspite of large crop out of Vietnam the price is at USD 2000 levels.
Going forward, the situation looks tighter because the big crop in Brazil has already been factored in by the trade and prices of coffee will harden in the second half of the fical.
Q: Does your realisation to push down the prices to the consumer remains intact?
A: Yes. We have been able to pass to and extract green price from our customers. So, overall the margin inspite of a fluctuating green price has been maintained and in some cases, it has improved.
Q: What is the effect of the rupee on your import and export?
A: In the green coffee business, about 80% of our produce is exported, it is a dollar denominated sale were we get a direct benefit of the foreign exchange. In case of instant coffee, the coffee is imported but the coffee cost is to the extent of about 60% and we are exposed to that. But 100% of the instant coffee is exported out.
So, net-net 60% we get hit but we get a benefit on 100%, we have an advantage on 40%. Overall, it has been good for Tata Coffee which is largely export oriented and very little domestic play. It has been very beneficial for us.
Q: How is the performance of your subsidiary Eight O' Clock?
A: Fiscal FY11-12 was a difficult year for Eight O' Clock. As Eight O' Clock is a 100% Arabica the margins were impacted in the first six months on account of very high green cost. We have taken good coverage of the coffee at these levels and going forward 2012-13 looks to be significantly better year for Eight O' Clock.
Q: After the signing the deal with GMCR (Green Mountain Coffee Roasters Inc) what's the outlook? Do you expect additional revenue? What does the new agreement bring to the table?
A: Although, the overall coffee consumption is growing at 2-2.5%. Single serve has been growing and showing double digit growth in US, Germany and other European countries. Eight O' Clock has entered this high growth arena. I expect things will be rolled out by September. That benefit will actually accrue in the second half of this fiscal.
Q: Are you still open to acquisitions of companies or brands?
A: Yes. On the standalone basis, Tata Coffee has shown huge growth in the last two years with 27% up this year. We have sweated our existing assets to the full limit. Our order books are full and instant coffee plants are running at 105% capacity.
We are now aggressively looking at growth through acquisition as it is the quickest against a green-field project. We have a program of expanding our instant coffee plant by 25% at Theni in Madurai that should go online by the end of this fiscal. But the next big step for Tata Coffee would be a meaningful acquisition both in the soluble coffee and also in Roast and Ground arena.
Q: Should we hear something on the acquisition front pretty quickly?
A: I can’t comment on the time frame but we are actively working on something significant.