Tata Coffee – Strong Performance

Tata Coffee, a Tata Group Company announced its Dec 2012 quarter results that were better than the street expectations. On the consolidated basis the company has posted lower topline growth on a sequential as well as YoY basis, the bottomline growth has been very good though. On a YoY basis, the topline growth is miniscule at just 0.52% to Rs 418 Crore (down by 12% QoQ). However, on account of a decline in raw material cost, the EBITDA margins have been better at 23.87% against the 15.24% in Dec 2011 and 21.83% in Sep 2012. On the net profit front, the consolidated bottomline for the Dec 2012 quarter stood at Rs 33.76 crore against Rs 29.53 crore showing a strong growth of 24%.

The management has stated, “The company operations have registered an impressive growth during the Dec quarter. Instant coffee sales were at a higher unit realisation. The strengthening of the US dollar also reflected positively on the green coffee and instant coffee operations.” The management further said, “There has been an incremental liability of Rs 9 crore in this quarter on account of retirement benefits provided to some of the directors and has been charged to an exceptional item. Else the profit would have been higher by a similar amount.”

On the valuation front, the CMP of Rs 1584 discounts its annualised FY2013 expected earnings by 24x. We feel that it provides a good scope for an upward movement from the current levels.