Coffee stocks in the buzz today. What's brewing?

New Delhi: Coffee stocks were much in demand during the trading session on Tuesday as demand-supply mismatch made coffee prices hit multi-year highs. Tea counters also followed suit.

Adverse weather conditions in Brazil, the world's largest coffee producer, along with strict lockdowns and severe logistical bottlenecks have disrupted the global coffee market and raised prices to four-year highs.

Following the update, domestic coffee and tea stocks witnessed strong demand from investors on Tuesday.

Shares of Tata Coffee soared over 6 per cent to Rs 216.95 on Tuesday, whereas CCL Products (India) rallied more than 5 per cent to Rs 419.60.

McLeod Russel shares hit upper circuit of 5 per cent to Rs 29.60. Jay Shree Tea added 5 per cent to Rs 113.55.

Coffee has gradually made its way through to become a mainstream beverage in India, said Nirmal Bang Institutional Equities in its recent report. While the domestic market consumption has been primarily catered through packaged coffee, the out of home or retail consumption has gained visible traction in the recent past, the report added.

Other players like Tata Consumer Products, Kanco Tea & Industries, Andrew Yule & Company, Warren Tea and Bombay Burmah Trading Company gained between 2 and 4 per cent each.

Supply issue
After erratic rainfalls, coffee crops in Brazil was hit by extremely cold weather which damaged the plantation. The crop is even more vulnerable to damage when a cold spell hits plants that have already been weakened by a drought.

Also, the second largest producer, Vietnam, was largely hit by lockdown because of rising Covid-19 cases. Thus, the beverage could not reach the global market.

India is the seventh largest coffee producer, whereas the domestic consumption remains very low. India exports a majority of its coffee production, which is likely to increase in the coming days, supported by a strong price rise.

The overall Indian coffee market is likely to grow to $2 billion by 2025 from $1.5 billion in 2020, the Nirmal Bang report said. "The bulk of India’s coffee production, about three-fourth, is exported and even much of the industry’s marketing efforts are focused on export promotion."

Analysts view
The price of coffee has increased by 20 per cent in the global market. The rise in coffee prices in the global market is expected to benefit beverage companies' margins, said Likhita Chepa, Senior Research Analyst at CapitalVia.

Investors can place their bets on Tata Coffee from this space as the firm is expected to benefit from margins without changing its price, she added. "The stock has witnessed traction in recent times as it is expected to come with strong numbers in the coming quarters and hence the market has gone highly bullish."

Other analysts also find more steam left in coffee stocks.

Santosh Meena, Head of Research, Swastika Investmart, has picked Tata Coffee and CCL Products from the sector on both fundamental and technical basis. "Tata Coffee can hit Rs 245, whereas CCL products can move up to Rs 500," he added.