The Top 4 Tea & Coffee Stocks to Add to Your Watchlist

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  • Apr 25, 2022 - The Top 4 Tea & Coffee Stocks to Add to Your Watchlist

The Top 4 Tea & Coffee Stocks to Add to Your Watchlist

Apr 25, 2022

The Top 4 Tea & Coffee Stocks to Add to Your Watchlist

Do you have an addiction to tea or coffee?

If there was a list of products which passed the test of timelessness, then tea and coffee both would appear on the top.

We don't know exactly how many people in the world consume tea and coffee. But both are the most popular beverages in the world.

Whenever there's a demand-supply mismatch, tea and coffee prices soar. This has an impact on companies involved in this space.

This time around, it's the Russia-Ukraine war and the Sri Lankan economic crisis that has brought tea and coffee stocks in focus.

Here are the top 4 companies in the tea and coffee space you should keep in your watchlist in these turbulent times.

#1 Tata Consumer

With its presence spanning decades, Tata Consumer is the second largest tea company globally. It has a leadership position in the global tea market.

The company's Tata Tea brand is the second largest tea brand in India while Tetley is the fourth largest tea brand in UK and the largest in Canada.

tea

What is its USP and how does the Tata group company stay ahead of its competition?

The company's brand strength and established distribution network does most of the work. Along with that, Tata Consumer's widening reach, marketing initiatives, and focus on launching premium segment products does wonders for it.

Tata Consumer has a diverse brand portfolio of offerings across categories of packet teas, namely economy, popular, and premium.

If a company has all the points in place, it can easily succeed in the tea business in India given India's steady increase in tea consumption.

For fiscal 2021, the branded tea business accounted for more than 50% of its revenues.

Tata Consumer also has JVs with Tata Starbucks and we all know the commanding footprint of the brand in India.

To know more, check out Tata Consumer's latest quarterly results and its financial factsheet.

#2 CCL Products

Next on our list we have CCL Products, the world's largest private label manufacturer of instant coffee with a capacity of more than 35,000 tonnes.

The company is export dependent. Exports contribute over 90% of company's sales.

It has manufacturing sites plants in India (Andhra Pradesh), Vietnam, and Switzerland.

While the company's global operations in Vietnam did not face major hurdles during the pandemic, the domestic business was partially impacted due to delayed shipments and unavailability of containers.

Despite the headwinds, the company managed to close financial 2021 with strong operating profits. This was because it added new clients in the United States and improved its capacity utilisation.

CCL Products is likely to report decent growth in fiscal 2022 owing to improvement in volumes and product mix.

Note that raw material prices fluctuate widely in the coffee industry. In a commodity like coffee, CCL Products has been able to maintain stable margins due to its standard process of procuring raw material only after it receives orders.

CCL Products Financial Snapshot

(Rs m, Consolidated) FY17 FY18 FY19 FY20 FY21
Net sales 9,764.90 11,366.70 10,814.20 11,391.50 12,424.80
Sales growth (%) 4.80% 16.40% -4.90% 5.30% 9.10%
Operating profit 2,333.40 2,437.40 2,488.20 2,903.90 3,011.50
Operating profit margin (%) 23.90% 21.40% 23.00% 25.50% 24.20%
Net profit 1,345.60 1,481.30 1,548.90 1,659.40 1,822.60
Net profit margin (%) 13.80% 13.00% 14.30% 14.60% 14.70%
Source: Equitymaster

All this while it had minimal debt on its books throughout the history.

What makes it possible for the company to operate in this manner is its decades-long, strong relationships with coffee bean producers and suppliers.

To know more, check out CCL Products' financial factsheet and its latest quarterly results.

#3 Rossell India

Rossell India is engaged in the business of cultivation, manufacturing and selling of black tea. The company cultivates tea across seven tea estates and operates seven factories, one associated with each tea estate.

While the company is primarily a tea company, it has forayed into several divisions in the past to reduce dependence on tea business. For example it had a support service division Aerotech Services which the management decided to close.

Another unit, Rossell Techsys division, is involved in wire-harnessing engineering, custom embedded systems, as well as design and development of test solutions for aerospace and defence clients.

Rossell also forayed into the hospitality business around eight years back but shut it down in 2019.

At present, the company is involved in two major divisions, Tea and Techsys.

Being an established player in the market, the company accounts for around 0.5% of India's tea production. The company promoters have around three decades of experience in the tea industry.

Its superior quality of tea in the domestic market results in a premium for its produce compared to the industry average. The weighted average realisation of tea produced by the company stood at around Rs 287 per kg compared to the North Indian auction average of around Rs 229 per kg.

Over the year gone by, shares of the company have gained over 90% with most of the gains coming in the past two months.

chart

#4 Jay Shree Tea & Industries

Incorporated in October 1945, Jay Shree Tea & Industries is part of the diversified conglomerate of B.K. Birla Group. The company is engaged in the manufacturing of tea and chemicals & fertilisers.

It's the third-largest tea producer in the world and ranks second in India. The company has been operating in the bulk tea industry for almost 75 years and currently accounts for about 2% of India's tea production.

The tea produced by Jayshree's estates has consistently commanded a premium over the district average because of its quality.

To reduce dependence on tea, the company is also involved in the chemicals and fertilisers, sugar, real estate, and education sectors through its subsidiaries.

The company recently amalgamated with its wholly owned subsidiary to streamline business activities into a single combined activity.

To know more, check out Jay Shree Tea's latest quarterly results and its financial factsheet.

The opportunity in crisis for Indian tea exporters

Note that Russia is among the top two buyers of Indian tea. So when the Russia-Ukraine war broke out, it was implied that tea exports will likely be hit.

As a result, there were delays in shipments and containers were being offloaded at different shipment ports.

According to industry experts, the domestic tea market may get impacted for the short term.

McLeod Russel, one of the largest tea companies in India, has said the domestic demand is expected to remain high in the coming months because of a negligible carryover and the impact of fall in exports to Russia will not be felt immediately.

This is also not the first time something like this is happening. The Indian tea and coffee industries are often marred by geopolitical tensions. The Gulf war, the disintegration of USSR, and more...

Thankfully, the situation is under control this time and Indian tea exporters have resumed the supply of tea as usual.

Another opportunity for Indian tea companies and exporters is they can make up for the shortfall as Sri Lanka goes through economic doldrums.

Sri Lanka is a major player in the global tea market. With Sri Lanka's growing economic crisis, tea factories are struggling to run their operations, facing power cuts for hours and not having enough fuel.

A decline in Sri Lanka's tea exports may help Indian exporters expand their shipments.

We will keep you updated on the latest developments from this space. Stay tuned.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

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