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Tata Coffee jumps 15% to record high; what's driving it?

Tata Coffee shares continued to surge on Friday, hitting a life high of Rs 1,557.70 on NSE. The stock has been on a run, up 33 percent, since it announced second quarter results on Oct 22.

November 16, 2012 / 10:14 PM IST
 
 
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Moneycontrol Bureau


Tata Coffee shares continued to surge on Friday, hitting a life high of Rs 1,564 on NSE. The stock has been on a run, up 41 percent, since it announced second quarter results on Oct 22.


So what's brewing?
 
"There are several triggers -- its coffee supply deal with Starbucks, which has started opening stores, strong results (profit up 65 percent in the first half)...," says Naveen Vyas of Microsec Research.


Tata Coffee's net profit rose 48 percent year-on-year in the second quarter to Rs 28 crore on a standalone basis, while consolidated net profit has doubled to Rs 37 crore.


Year-to-date, its net profit is up 65 percent, while total income has gained 28 percent.


Tata Coffee said the increase in income was driven by higher instant coffee volume and better realisations in plantations. Profits, on the other hand, have surged on the back of higher operating profit and lower interest.


Separately, Tata Global Beverages-Starbucks joint venture, which sources coffee from Tata Coffee, started rolling out stores last month. The initial response has been very good and that also means better offtake for Tata Coffee.


Tata Coffee has also recently set up a new roastery in Coorg, Karnataka, from where it will initially supply to the Tata Starbucks outlets in India and then aim for gradually supplying Starbucks' outlets around the world.


Analysts say the association with Starbucks too got investors excited as the supply deal will definitely boost its volumes and earnings.


Tata Coffee also says its seeing rapidly growing sales to the premium paying market segments for certified and specialty coffees, and that will also aid margins.


While its domestic business is steaming hot, its US subsidiary Eight O' Clock Coffee too has seen a turnaround. It had a profit before tax of Rs 40 crore in the first six months of this financial year, compared with a loss of Rs 3 crore, a  year ago. Total income rose to Rs 570 crore from Rs 499 crore. 


But should one buy the stock even after the recent sharp runup?


Vyas, had given a "buy" call post its earnings, saying at around Rs 1,055 the stock discounted its FY13 expected EPS by 16 times.


Even now after the rally, the stock is trading at 22 PE multiple, a discount compared with other FMCG stocks, which have been on the run for over the past one year, and trade at around 25-30 times, he says.


Vyas says the stock still is a very good "buying" opportunity in the long term given the overall growth prospectus, and has a target price of Rs 1,750.

Tata Coffee shares closed up 6.1 percent at Rs 1,430.70 on NSE on Friday.