Accumulate Tata Coffee - Way2Wealth

Valuations

The company's coffee plantation business set to enjoy better realizations on the back of sustainable demand from new markets. Weather vagaries have reduced crop and increased realizations for other plantation crops - pepper & tea. We believe there will be significant improvement in profitability of Eight o' Clock coffee as Arabica prices correct substantially.

The stock was significantly re-rated during the period of 2010 to 2012. At the CMP of Rs.1012 the stock currently trades at 17 x its FY13 estimated EPS of Rs.59.7.We advise investors to ACCUMULATE the stock.

Risks & Concerns

- Weather vagaries can create excessive loss of crop which can inhibit the company from taking advantage of rising commodity prices.

- The company's US operations invests in future trading in coffee futures. The impact of this on financials is unpredictable.

- Demand volatility from mature traditional markets due to recessionary trends. New demand rising from emerging markets.

Source : Equity Bulls

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