Volatile coffee prices to decide TCL’s future

Volatile coffee prices to decide TCL’s future
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First Published: Thu, May 20 2010. 11 21 PM IST

Graphic: Yogesh Kumar/Mint
Graphic: Yogesh Kumar/Mint
Updated: Thu, May 20 2010. 11 21 PM IST
Tata Coffee Ltd (TCL) fared better in fiscal 2010 despite slow growth in its stand-alone operations as its US subsidiary Eight O’Clock Coffee Co. (EOC) performed well. The global financial crisis affected the instant coffee business, the mainstay of the stand-alone entity. The business is coming back to stability, according to the company, which could explain the 40% growth in revenue in the March quarter. Full year sales, however, were up by just 5% on a stand-alone basis.
Graphic: Yogesh Kumar/Mint
But TCL’s consolidated revenue rose by 16% to Rs1,296 crore in FY10, though March quarter sales growth was much lower at 8%. During the year, EOC’s sales rose by 15% to $200 million (Rs936 crore) and its net profit doubled to $15 million. During FY10, the average International Coffee Organization composite coffee price was up by only 2%. During the March quarter, the ICO composite price for coffee was 17% higher over a year ago.
TCL’s operating profit margins during FY10 improved due to cost controls, improving by four percentage points to 14%. Better margins, accompanied by lower interest costs and lower restructuring costs of its foreign operations contributed to a near doubling of its net profit to Rs74 crore. The growth in its March quarter profit was relatively lower at 33%.
Its outlook for FY11 depends on how soon its instant coffee business stabilizes fully. Any effect of concerns on Europe’s stability affects exports to that region, it could affect domestic coffee exporters too. As of now, the outlook appears good, with the country’s total coffee exports having risen by 47% in the January-May period, according to the Coffee Board. TCL’s EOC business gives it a hedge against export-driven uncertainty.
For now, the focus will shift to estimates of global coffee production in the year ahead. The Brazilian market may see a bumper crop. If estimates of coffee production are revised upward, it could exert some pressure on coffee prices. In turn, that would affect coffee exports. TCL’s branded US coffee operations could provide a hedge against a downtrend in the more commodity-oriented parts of the business. TCL’s share price has risen after its results, but volatility in coffee prices will determine its future course.
Write to us at marktomarket@livemint.com
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First Published: Thu, May 20 2010. 11 21 PM IST