'We are always open to more buyouts'

The 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.

The 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 Tata Coffee?
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 margins?
The margins should improve significantly as EOC has been reporting a more-than-healthy margin rise.

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 year.

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.