Aromatic brew
Tata Coffee: Braving low prices & sales for a bright show
Financial Express — June 8, 2003

Tata Coffee (TCL) did better than expected during the year ended March 2003 to drive the scrip up by more than six per cent at Rs 90.35 per share in one session. Even a five per cent decline in sales at Rs 168.5 crore could not spike the rise. It is apparent that investors had expected lower sales and profit because of depressed global coffee market during the first half of this year as coffee prices ruled the lowest during last 30 years. Bumper coffee production in Brazil and Vietnam pushed down average auction price of arabic coffee by 57 per cent to Rs 57 per kg (Rs 129 per kg in 1997) and prices of robusta coffee fell by 73 per cent at Rs 26 per kg (Rs 95 per kg in 1997) during first half of this year. Domestic industry also expected a six per cent decline in sales at 2,80,000 tonnes during the 2002-03. However, prices improved during the second half of the year that helped recouping loss of sales and profits of the company.

The company tightened control on expenses, down 6.5 per cent at Rs 143 crore. Raw material cost went down by eight per cent at Rs 53 crore and other expenses by nine per cent at Rs 52 crore. Consequently, operating profit remained unchanged at Rs 25.7 crore (Rs 25.4 crore). The company also exercised greater control on debt servicing that made possible 16 per cent decline in interest at Rs seven crore. During the year, the company sold some of its property and investment to make an extra- ordinary income of Rs 7.7 crore. Net profit went up 121 per cent at Rs 20 crore, as a result.

TCL is the largest coffee conglomerate in Asia. It has fully integrated plantation operations in Karnataka and Andhra Pradesh. TCL owns 23 coffee estates spread over 20,000 acres of land where coffee is entirely shade-grown. The company has four curing works, two in Coorg and one each at Mangalore and Tellicherry in Kerala. TCL covers about 2.6 per cent of total coffee plantation area in the country. Small coffee growers control about 94 per cent of area under coffee plantation.

TCL has taken major initiatives to enable it to move up the coffee value chain thereby improving its margins. The company has recently entered into a strategic alliance with Barista Coffee Company Ltd. Barista has been promoted by Turner Morrison Group and focusses on offering life style value of brands through expresso bars and has opened number of bars across the country.

TCL is currently the exclusive supplier of Coffee Blends to Barista for its entire range of offerings. This alliance will give TCL access to the value added market through Barista’s expanding consumer base while Barista would get an access to TCL’s Technical and Blend experience on speciality coffee.

TCL has initiated setting up of a joint venture company with its Russian partners for marketing its instant coffee in Russia. The company is also into business of other plantation crops like pepper, cardamom, plywood etc. The company plans to optimize the utilization of its captive timber resources (which is sustainably harvested every year as a part of the estate cultural practice and maintaining the ecological balance.