Bangalore: Tata Coffee Ltd will invest more than 300 crore in three years to increase production capacity at its higher-margin instant coffee business, partly through acquisitions, managing director Hameed Huq said.

“Any acquisitions will most likely be outside India. We already have two coffee extraction plants (for instant coffee) in India and for higher growth, having three plants in one country doesn’t make much sense," Huq said in an interview. “We were looking at a couple of acquisitions but they didn’t happen. By September we’ll start scouting again."

The company has invested 70 crore to add two instant coffee plants in Tamil Nadu.

Tata Coffee, controlled by Tata Global Beverages Ltd, sells instant coffee as well as roasted and raw coffee beans in India, Russia, the US, Japan and countries in Africa. It also owns the Eight O’Clock coffee brand in the US. The company is looking to boost margins by pushing faster into instant coffee and moving out of lower-priced instant coffee.

Huq said the company will generate 75% of its revenue, excluding Eight O’Clock, from instant coffee within three years, compared with the less than 60% currently.

“We’re also moving out of spray-dried instant coffee, which is the low-end, commoditized category. By September, we will only make freeze-dried and agglomerated instant coffees, which have 40-50% higher margins than the low-end category," Huq said. “There’s a huge demand for agglomerated coffee. At the moment, we’re not able to meet all that demand."

“It’s a good move to increase focus on instant coffee because instant coffee is at the highest end of the coffee value chain. Earlier they used to mostly sell raw coffee, which left them exposed to a lot of fluctuations in coffee prices," said Amol Rao, analyst at Anand Rathi Securities, a brokerage. “Now, with more instant coffee sales, they would get higher margins and more importantly, it reduces their exposure to volatile coffee prices," he said.

Tata Coffee, which also supplies coffee beans to StarBucks cafes in India and abroad, will enter new international markets this year to boost growth. “We’re entering southeast Asia immediately and we will also be in central and eastern Europe by September," Huq said.

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