Tata Coffee - An unique undervalued investment

nav_1996 · September 26, 2014, 1:43am

Sharing my experience on how I payed price on a similar case of land bank valuations trap, may be not so relevant but thought would caution. I held RS Software from Rs 60 to Rs 240 and it was 25% of my portfolio. It was a great stock when I bought,cash on book, consistent growth, expanding margins and very high ROCE and decent dividend payment. But in 2 years of my owning it they never were upto what they would claim but margins expanded some mid teen growth. So when the new govt looked like was going to be NDA, I thought I should sell RS Software and bet on Infra, Railway and Defence R&D. There I found BEML which had mix of all and looked very promising. It was PE of 700!!! when I bought ,was at Rs750 and a market cap of about Rs 3000Cr.

I come from Bangalore and know BEML has a huge land bank in a very good (eastern Bangalore which is hub of all IT companies) location of Bangalore and it should be at least 200 acre of land.

So my back of the envelope calculation showed land bank valuation of Rs 4000 crores however the market cap was Rs 3000Cr, I thought I am getting entire businesses of sunrise sectors for BEML is -25% since I bought and RS Software is 200% up since I sold!!! I am still wringing my hands!

Mahesh, That is true. We should not own a stock for land bank especially PSU who can never monetize land. But Tata Coffee has solid FCF and its owns third largest wholesale brand in world’s largest coffee market USA. As I mentioned earlier they are seriously pushing Eight O Clock and investing behind it.

http://www.brandchannel.com/home/post/2014/09/23/140923-Central-Perk.aspx

Land bank argument was just to show undervaluation.

I know of people who look for alternate investment and invest in plantations and farm land. This appears to be perfect fit for those investments.

So yes this is not going to be fastest growing investment or hold for ever kind of stock or apt for concentrated portfolios; but opportunistic bet for diversified portfolio in medium term.

I see this as zero downside from here and 50% upside in a year and I don’t find many such opportunities in today’s market.

free!But

Regarding the valuation of plantations, are all of them owned by the company or are they on lease of a fixed period? I think Tata Tea Munnar tea plantations are not owned by the company.