Tata Coffee: A Time To Buy?

Tata Coffee seems to be firmly in the grip of momentum traders who are making it dance to their tune. These traders sent the stock price of Tata Coffee spurting up 20% in November 2012 over the Tata Global – Starbucks euphoria. And now they have sent it spiraling down 20% + over some other issue.

In just the last one week, Tata Coffee has lost 30%. Its’ monthly loss stands at 37%.

Yesterday, 12th June 2013, a combined 639,182 shares representing about 8% of free-float equity capital of Tata Coffee were sold. This is abnormal because the average daily turnover is less than 50,000 shares.

The management was forced to come out with a clarification that there was no news that justified the heavy selling.

One possibility is that momentum traders may be exiting. The other possibility is that some pledged shares may have been sold by jittery lenders.

Way2Wealth sees a great buying opportunity in the Tata Coffee crash. In a research report, Way2Wealth opined that the fundamentals of Tata Coffee are strong and that there will be further improvement in profitability on a consolidated basis.

Way2Wealth explained that the standalone operations are doing well in the light of higher commodity prices and the fall in the rupee. The instant coffee business is also growing on the back of newer markets and higher end offerings.

Tata Coffee is also offering value added instant coffee offerings, like freeze dried coffee, which are rising in share of percentage to total sales. This will continue to impact profitability to positively, Way2Wealth opined.

Also Tata Coffee is currently working at 100 percent capacity utilization and plans to further expand its coffee extraction facilities.

Tata Coffee’s valuations are also quite attractive now. At the CMP of Rs 1029, the stock is trading at about 15 times its FY14 estimated EPS of Rs. 72. This is not unreasonable give the pedigree of the Tata management. Way2Wealth has advised investors to ‘Accumulate’ the stock.

UPDATE:

The ET has now revealed that the seller of the Tata Coffee stock was none other than the great Sharad Kantilal Shah who holds a massive chunk of 702,323 shares comprising 3.76% of its equity. Sharad Kantilal Shah at one stage held 12.90% of Tata Coffee’s equity.

Anyway, Sharad Kantilal Shah is reported to have sold 1.08 lakh shares for Rs. 9.72 crore.

Another big ticket shareholder, Kotak Mahindra Prime, sold 8 lakh shares. As of March 2013, they are shown as holding 510,145 shares in Tata Coffee. So, did the balance shares belong to Sharad Kantilal Shah and they were pledged with Kotak?

Sharad Kantilal Shah is known to be a Big Bear in the market. He got into trouble with Anil Ambani’s Reliance Infra in February 2011 for allegedly driving down the prices of Infra companies by manipulation and rumour mongering. R-Infra wrote a complaint to the IB that Sharad Kantilal Shah and his bear cartel had caused a loss of 3,00,000 crore for the infrastructure sector by short-selling all infra stocks.

So, if you are proposing to buy into Tata Coffee, you better check whether Sharad Kantilal Shah is still invested in it or not.