TATA COFFEE LTD ; BEST ENTRY PRICE

                                         CMP 788                                      BSE 15738

Ideally, it would be advisable that all long-term incremental money should now go into the beaten down rate -sensitives but in order to maintain a healthy buffer, it is also important to have a smattering of good FMCG/CONSUMPTION stories in one's long term Portfolio. Hence, bucking my inclination, I have thought of examining TATA COFFEE in this Post.

TECHNICALS:

• The 2 year Price Charts indicate, without doubt, that the SMA 365 is indeed a solid long term support for the Stock. The SMA 365 has never been violated on a Closing basis in the last 2 years; the closest encounter being on 10/12/2010 when it was violated intraday only. Other than this, on 19/12/2011 it came close intraday but the Closing was well above. Said SMA 365 is currently at 710.
• On the upside, the SMA 200 at 842 levels is the major resistance and consistent closing above this level is a prerequisite for confirmation of the uptrend.

FUNDAMENTALS:

• I will attempt to be brief on this since all of us are aware of the upcoming Starbucks entry in a mooted JV with the Company. This ,in my considered opinion, is going to be a game changer for TATA COFFEE and will complete its transformation from a plan-vanilla Plantation Commodity producer to a high-margin value-added FMCG Scrip.
• Financials in the past five Quarters have been reasonably stable, admittedly not earth-shaking, but still more than par for the course. World Coffee prices have a definite hardish undertone and are likely to remain so the rest of this fiscal, which should shore up the bottom-line of the Company.
• With a little luck, the Company could well do an EPS of Rs 35 this Financial which puts it at about 22x FY12 earnings. This ain't cheap considering the macro Market but I don't think one is going to get this scrip much cheaper anytime soon.
• The Starbucks launch speculated for next Quarter would be a giant sentiment boost and even though the financial contours of the JV and the grass-root roll out will become clearer only with time, the Market is likely to pre-empt the event and give the Scrip a further spike in the weeks to come.

So the short point is, that the long term investor could look at entering in a phased manner in the 710-750 range and hold long for reasonably good gains. Alternately, one could buy a small quantity at CMP 788 and add more in the aforesaid 710-750 range.


TATA COFFEE Q2 FY12 RESULTS  SEE HERE