Multi Baggers

Tata Coffee

Tata Coffee is a 58% subsidiary of Tata Tea Ltd. and is the largest integrated coffee plantation company in the world, with hands in every aspect of coffee making process ranging from growing and curing of coffee and tea to marketing of value added coffee products. However, tea has small share to its topline.

The company owns 19 coffee estates spread over 8,037 hectares in Coorg, Chickmaglur and Hassan districts of Karnataka and in Valparai district of Tamil Nadu and produces 10,000 tonnes of natural shade grown Arabica and Robusta coffee, in both, washed and unwashed forms.

Eight O’ clock Coffee Company (EOC) is a subsidiary of the company which has significant retail distribution strength in US, with 67% commodity volume penetration of US retail coffee market.

The present equity of the company is at Rs 18.68 crores with face value of Rs 10 each. Of this, 57.50% is promoters equity, which is held by Tata Tea Ltd. as stated above. Mutual funds, Flls, OCBs and insurance companies are holding 14.50% while 28% is held by the general public. Present market capitalization of the company is just at Rs 660 crores against its topline of Rs 1,120 crores for FY09 on consolidated basis.

For FY09, the total income of the company was at Rs 1,121 crores with PAT of Rs 21.10 crores resulting in an EPS of Rs 11.30. Dividend of 60% was paid by the company for the year.

Of this financial performance, EOC had revenue of Rs 835 crores and PAT of Rs 35 crores, of which 51% got added into the financials of the company, in its bottomline for the year. During FY09, the company spent Rs 13.08 crores on restructuring of EOC and future years would show better margins, due to this.

Q1 of FY10 had shown vastly improved financial performance with total income at Rs 330 crores with PAT at Rs 16.35 crores resulting in an EPS of Rs 8.76. This quarter had Rs 2.83 crores as restructuring expenses of EOC and inventory loss of Rs 8.45 crores, failing which, profits would have been much better.

EOC posted a growth of 30% in turnover in June 09 quarter at Rs 247 crores and PAT rose by 402% at Rs 25 crores. So, EOC has started showing better numbers, which would not only get maintained but would rise from hereon. EOC is likely to give a PAT of Rs 100 crores on an annual basis, of which, Rs 50 crores would get added in the bottomline of the company, resulting in an EPS of close to Rs 25 or above.

The company is expected to post an EPS of Rs 35 for FY10 and close to Rs 50 for FY11. Traditionally, such companies are ruling at a very high PE multiple on bourses.

Share is ruling at Rs 358.25, which implies a PE of about 10 times, based on estimated earning of FY10. Share touched its 52 week high on 24th August 09, at Rs 390 and had corrected since then.

Share at Rs 358.25 is recommended as an excellent and safe bet which can move to Rs 500 by Dec. 09 and Rs 700 in next 12 months.

Disclaimer: The writer may be deemed to be concerned or interested in the recommendation as he and his clients are invested in this scrip.