Reviews

In this edition, we have reviewed Tata Coffee Limited and Castrol India Limited. We suggest our reader-investors to HOLD in Tata Coffee Limited and Castrol India Limited 

We had previously recommended Tata Coffee in Volume 35, Issue No. 22 under the ‘Low Price’ segment. The recommended price for the stock was Rs 103.10. We had recommended the stock on the basis of the company’s scope for multiple expansion projects.

Tata Coffee, through its subsidiaries, has its business in the production, trading and distribution of coffee, tea and allied products. In terms of its financial performance, on a consolidated quarterly basis the net sales rose by 6.25 per cent to Rs 532.76 crore in Q3FY21 as compared to Rs 501.42 crore in Q3FY20. The operating profit increased by 13.81 per cent from Rs 89.45 crore in Q3FY20 to Rs 101.80 crore in Q3FY21. Meanwhile, the net profit surged up in the quarter at Rs 50.18 crore in Q3FY21 as compared to Rs 41.99 crore in Q3FY20, a rise of 19.5 per cent.

On an annual basis the net sales rose by 8.98 per cent from Rs 1,966.06 crore in FY19 to Rs 1,803.98 crore in FY20. On the other hand, the operating profit was seen expanding by 30.43 per cent in FY20 as compared to FY19. The net profit on an annual basis rose by 31.92 per cent at Rs 141.01 crore in FY20 compared to Rs 106.89 crore in FY19. Tata Coffee has a full value chain presence from bean to instant coffee and also a diversified market footprint.

The company is well-poised to take care of any uncertainty due to a change in the pandemic scenario and is all set to continue on the growth path. Its footprint in key geographies and keen focus on new product development are predicted to augur well for the company's business. There are indications that the popularity of coffee is increasing with the spread of foreign and home grown coffee shops. Hence, we recommend HOLD for this stock.

We had previously recommended Castrol India in Volume 35, Issue No. 23 under the ‘Low Price’ segment. The recommended price for the stock was Rs 110.70. We had recommended the stock on the basis of healthy cash flow from operations and good dividend pay-out ratio. Castrol India is engaged in providing coke and refined petroleum products. In terms of its financial performance, on a consolidated quarterly basis the net sales jumped to Rs 2,996.9 crore in Q3FY21 as compared to Rs 1,011.8 crore in Q3FY20. The total income increased substantially from Rs 1,028 crore in Q3FY20 to Rs 3,058.9 crore in Q3FY21. Meanwhile, the net profit increased by more than 100 per cent in the quarter at Rs 582.9 crore in Q3FY21 as compared to Rs 271.3 crore in Q3FY20.

On an annual basis the net sales declined by 0.71 per cent from Rs 3,904.55 crore in FY19 to Rs 3,876.82 crore in FY20. On the other hand, the total income was seen decreasing by 1.18 per cent in FY20 as compared to FY19. The net profit on an annual basis rose by 16.8 per cent at Rs 827.37 crore in FY20 as compared to Rs 708.36 crore in FY19.

The company has signed agreements with many automobile and oil and gas companies in the industry. With the revival of personal mobility volumes and increased CV lubricant sales we can predict volume growth over the next few years. Besides, Castrol India’s collaboration with an OMC retail network also indicates volume growth opportunities. Oil and gas sector stands amongst the eight core industries in India.Energy demand of India is expected to grow faster compared to other major economies supported by ongoing robust economic growth. Hence, we recommend HOLD for this scrip.
(Closing price as of Mar 30, 2021)