Tata Coffee expects its Arabica crop production to increase 30 percent this year, while it aims to maintain Robusta production at last year's levels in FY14.
Robusta variety of coffee accounts for 70 percent of the company's total production, while Arabica accounts for 30 percent, Hameed Huq, managing director, told CNBC-TV18.
In company’s standalone accounts, 20 percent revenues are from plantations while 55-60 percent is from instant coffee production.
Since a majority of its revenues are from instant coffee production, Huq said that the fall in raw coffee prices would only benefit the company.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Reports indicate that coffee output in India could suffer due to inconsistent rains at the start of the year. Could you throw some light on the coffee output for the entire seasons? What will the prices be?
A: On coffee output, we harvest Arabica first and then go on to Robusta. We are looking at almost 30 percent increase in Arabica production over the previous year.
Last year, there was an acute drought across most of Karnataka which impacted the crop. We are not seeing that. On Robusta growth, we are looking at maintaining last year’s levels. We had a very large crop last year which again is reflective of the general industry.
The crop will not be lower next year. In fact, it definitely should be higher than harvest in the season that ended.
Q: You are dependent on 70 percent of your raw material needs on Robusta. Have the prospects for that improved with the rates?
A: I will cover that in two things. In Tata Coffee, 70 percent of our plantation is Robusta and 30 percent is Arabica. We had a very good Arabica crop last year. The Robusta prices have not slid as much as Arabica.
If you look at Tata Coffee's standalone accounts, plantation coffee constitutes less that 20 percent of our turnover. Over 56-60 percent of our turnover actually comes from instant coffee.
To that extent, whether coffee prices are moving slightly, easing up, doesn't really impact Tata Coffee anymore because it is not totally a coffee plantation company.
However, overall also the coffee plantation is doing well, but there has been easing of prices.
Q: What is the percentage of your expenses accounted by raw materials?
A: If you look at our consolidated accounts, 83-85 percent of our turnover is based on green coffee being purchased out.
If there is any easing in prices, it adds to the business and its margins. Within the space of instant coffee, anything between 65-70 percent cost is related to green coffee.
So, when you see this easing of prices, generally it is favourable to Tata Coffee, not the other way round.
Q: You closed FY13 with a margin improvement due to benign raw material prices. How are you expecting margins to pan out in FY14? Can we expect some further improvement? Any guidance or target that you could help us with?
A: We don't give guidance. But if you look at the basic fundamentals, we are largely driven on two of our major businesses by green coffee prices. Both of them have softened.
We have just commissioned an expansion program at Theni where our instant coffee plant exists and the capacity is going up by 30 percent. The plantation has gone on stream for the same.