Multi Baggers

(Source: Capitaline)

Investment Rationale

The acquisition of Eight O’ Clock Coffee brings in several strategic and operational gains for Tata Coffee – It will help transform Tata Coffee from being just a commodity player into becoming a significant branded player in a key market. It gives Tata Coffee a platform to convert all its instant soluble coffee and its freeze-dried coffee products into the Eight O' Clock Coffee brand and penetrate other countries like Russia and Ukraine. Infact, the company has firmed up plans to launch Eight O’ Clock brand in Russia, Ukraine and CIS.

The acquisition provides Tata Coffee, entry into world’s largest coffee market, provides access to distribution reach of Eight O’ Clock, and ability to leverage the retail presence for Tata Tea’s portfolio.

Moreover, US being a high beverage market, the acquisition would be of great interest to both Tata Tea and Tata Coffee and may take Tata Tea Group closer to its ambition of becoming a significant player in the US beverage market.

The management has a clear vision of making Tata Tea Group including Tata Tea, Tetley, Tata Coffee and Eight O’ Clock combine as one of the largest and most admired beverage players in the world - against that backdrop, merger of Tata Coffee with Tata Tea may be an interesting option, which we believe will happen. A ratio favourable to Tata Coffee than the current price parity between stock prices of Tata Tea and Tata Coffee is a possibility, which may re-rate the stock of Tata Coffee.

Over the short term, a strong rupee may not be in the best interest of the company, however given the bigger vision of the management to make the group one of the large beverage companies of the world, and given the capabilities of the management and track record of the group, we believe the company will be able to tide over the difficult phase.

Tata Coffee has large Rosewood reserves. Moreover, Silver Oak planted as shade for coffee is a sustainable source of Timber supply. The valuation of Rosewood and Shade Trees alone could be substantial.

We believe the acquisition of Eight O’ Clock can potentially catapault Tata Coffee into a different orbit. Coffee Prices internationally have been on an upswing and are ruling firm. The stock of Tata Coffee currently trading near its 52 week low is a good investment option.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members donot have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com.

This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.