BANGALORE – Tata Coffee Ltd. plans to invest invest more than US$50 million in three years to increase production capacity of its instant coffee business, partly through acquisitions, managing director Hameed Huq said.
The company has already invested US$11 million to add two instant coffee plants in Tamil Nadu.
It is looking to boost margins by pushing faster into instant coffee and moving out of lower-priced instant coffee.
“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.”
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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