Tata Coffee is an unique investment play on plantation asset-commodity and brands. It is India’s largest coffee and black pepper producer. It also produces tea and timber.
Sheer diversity of its business and Tata group ownership makes it a compelling portfolio pick that too when market seems to providing a bargain.
Future opportunities exist in terms of Tata Coffee being vehicle for Tata group’s global coffee play where it finds that tea may have limited potential. Supplies to Starbucks is other area where there is enormous opportunity which can unfold.
Market seems to be mis-judging its current valuation:
Asset based valuation:
1.32,000 Acres of plantations. Valuation of even 15 lakhs/ acre gives it a valuation of Cr 4800.
2). 600 M USD valuation for Eight of clock coffee based on 30 M USD profit and 20 PE. considering Tata Coffee’s holding of 51% this is about 900 Cr Rs.
3). Around 1000 Cr Debt
4). Assigning 100 Cr for its Russia based Grand brand, small Indian brands, plus coffee processing units.
Valuation: 4800 + 900 - 1000 +100 = Rs 4800 Cr
Tata coffee’s current valuation is just Rs 1800 Cr
Earning based valuation:
A PE of 13
Last 3 years EPS growth of 20%
RoE of 20% +
Div Yield 1.4 %
Even CCL which just coffee processor and does not have plantations and much of brand play quotes at a PE of 21.
Any additional inputs and viewpoints are welcome.
Disc: Started investing and adding on dips