'We are always open to
Asian Age - July 17, 2006
M .H. Ashraff is managing director of the
Bangalore based Tata Coffee Ltd., Asia's
largest coffee plantation company. Tata
Coffee has been in the news recently after
it acquired the US-based Eight O'Clock Coffee
for $220 million from private equity firm
Gryphon Investors. With nearly 26 estates
spread over 7,000 hectares across Hassan,
Chikmagalur and Coorg districts of Karnataka,
Tata Coffee produces around 10 million kg
of coffee a year and is one of India's key
exporters of instant coffee.
company also grows pepper and cardamom in
its coffee estates and has tied up with
another Tata arm, Indian Hotels for its
foray into eco-tourism with 'Plantation
trails'. With the EOC acquisition scheduled
to be completed by July 31, Tata Coffee
will raise close to Rs 250 crore through
partly convertible debentures to partly
fund its buyout and invest in its capacity
expansion programmes. Excerpts from an interview
with Santosh Singh
How have things
changed for you and Tata Coffee after clinching
the EOC deal?
With the EOC acquisition, Tata Coffee has
gone onto a different plane in terms of
size and recognition. Even though Tata Coffee
is the largest integrated player in the
Indian coffee segment, we lacked a brand.
Although we had brands like Mr Bean, Mysore
Gold and Tata Cafe, there was no brand within
the Tata Coffee fold that would complete
the value-chain. With EOC, we have managed
to fill that space.
How would Tata
Coffee fund the acquisition?
Tata Coffee will be arranging the equity
portion of $50 million, while the remaining
$170 million will be the debt component
from Rabobank. (Since the interview, Tata
Coffee informed the Bombay Stock Exchange
last week that the company would raise close
to Rs 250 crore through partly convertible
debentures to part-fund the EOC buy and
for other capex plans.)
What are the
markets that you are now looking at to sell
EOC is based in New Jersey on the East Coast
of the United States and has a strong distribution
network. Now we are looking at building
our network in the economically better-off
West Coast, which is a major constituent
of the $21 billion US coffee market. Further,
Tata Coffee would focus on the CIS, Russia
and the East European market which together
is emerging as a strong instant coffee consuming
market growing at 14 per cent year-on-year.
What about India?
India is not a priority market for Tata
Coffee. However, the market throws up huge
opportunity for coffee players. Right now
there are no plans to get the EOC brand
to India, but in future we are not averse
to launching the brand in the country.
How do you see
the revenues appreciating for Tata Coffee
this year having bought EOC which has two-and-a-half
times more revenue than yours?
The topline is bound to escalate substantially
since EOC closed last year with sales of
$109 million. Tata Coffee did a turnover
Rs 190 crore last year which should go up
to Rs 500 crore by this fiscal-end and the
target for next year is anywhere between
Rs 700-800 crore. Moreover, on a five-year
horizon, Tata Coffee's revenues should touch
Rs 1,500 crore and help us in becoming the
fourth largest coffee player in the world
with a total production of 10,000 metric
tonnes of coffee.
What about the
The margins should improve significantly
as EOC has been reporting a more-than-healthy
How are global
coffee prices expected to move this year?
Coffee prices have been steady for the last
one-and-a-half years. That said, I must
add prices have bounced back in the last
two weeks. Plus there won't be a big crop
of coffee in Brazil this year. On the back
of such a situation, coffee prices should
stay firm or even go up in the next one
What are the
expansion plans that have been laid out
by Tata Coffee in the short-term?
Tata Coffee is setting up a 2,000 tonne
freeze-dried coffee unit in Theni, Tamil
Nadu, with an investment of Rs 72 crore
and a 3,600 tonne instant coffee unit in
Uganda with Rs 70 crore. Negotiations are
on with the Ugandan government for an agreement
on the proposed unit and a final decision
should emerge by this month-end. Once the
Theni plant becomes operational the company
plans to export freeze-dried coffee to Russia,
European countries and Vietnam.
Is Tata Coffee
looking at more acquisitions and are there
plans of carving out a large global beverage
player with an integration of Tata Coffee
and Tata Tea?
We are always open for more buyouts. As
for the integration bit, there are no such
plans as of now but we could look at operating
as one large beverage company with operations
throughout the world.