Brokerage house Way2Wealth is bullish on Tata Coffee and has recommended traders to 'Accumulate' the stock. The research firm believes the fundamentals still hold strong and the company on the consolidated basis will further improvement in profitability for the reasons enumerated above.
Way2Wealth's research report on Tata Coffee
"Tata Coffee Limited has witness unprecedented fall in the last two trading sessions. We believe the fundamentals still hold strong and the company on the consolidated basis will further improvement in profitability.
In the standalone operations the company operations proved to live up to the light of higher commodity prices and rupee which favorably impacted the plantation business. The instant coffee business also grew on the back of newer markets and higher end offering.
The instant coffee business to grow on the back of penetration in non Russian markets. Currently it is 40 percent of the total share. The company plans to further extend it to other countries.
Value added instant coffee offerings, like freeze dried coffee, are rising in share of percentage to total sales. This will continue to impact profitability to positively. The share of freeze dried which was negligible 2-3 years ago is now 13 percent of instant coffee sales in the current year.
The company is currently working at 100 percent capacity utilization and the company plans to further expand its coffee extraction facilities.
The plantation business also performed well on the back of higher commodity prices. Arabica Sales volume more by 18 percent. These are the more premium quality of bean and hence helping improve per kg realization. Also company’s attempt to sell more and more Specialty and Certified coffee is also bearing fruit. Per kg realization for tea and pepper also improved.
We believe the plantation business to grow on the back of initiatives to improve per unit relation through superior offering as well as improving yield on the back of replantion.
We believe the standalone business gets a natural hedge between the instant coffee an plantation business.
In the consolidated operations we believe the scope for further margin improvement in EOC operations still holds valid on the back of steady pricing environment in USA.
The K-cups initiative is also provided traction to topline growth for EOC. We believe this will continue to fuel growth.
Its new initiative under the associate Rising Beverages has started launches in the East cost of USA. A unique twist cap for vitamin infused water offerings is a new in the market with value added offering of instant vitamin addition unlike competitor wherein it is already present. It is being pitched as a better drink against similar drinks as the vitamin power reduce on the shelf pre-mixed drinks. This year the loss from associate was INR 8.5 crs. As a startup we believe the loss to continue for 2 years more but with tremendous post potential to profitability.
Valuations: Tata Coffee Limited has witness unprecedented fall in the last two trading sessions. We believe the fundamentals still hold strong and the company on the consolidated basis will further improvement in profitability for the reasons enumerated above. At the CMP of Rs 1100.25 the stock currently trades at 15.3x its FY14 estimated EPS of Rs72. We advise investors to 'Accumulate' the stock," says Way2Wealth research report.
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