Mumbai: Shares of Tata Global Beverages surged 6 per cent on Tuesday morning as investors gave a thumbs up to its joint venture with Starbucks Coffee Co to set up cafes in India.
On Monday, the Tata group company, which owns Tetley Tea and Eight O'Clock Coffee among many other brands, had signed a 50-50 JV deal with Starbucks, the world's largest coffee retailer. The two companies will initially invest Rs 200 crore each in the company to be called Tata Starbucks Ltd.
The first cafe, which will be named 'Starbucks Coffee - A Tata Alliance' will open by August-September and the plan is to open 50 outlets in the initial phase, beginning with Mumbai and Delhi and then spreading fast to other cities.
"We view Tata Global Beverages' JV with Starbucks to operate a coffee chain in India as a medium-term positive. This JV could potentially address a significant challenge faced by Tata Global Beverages - of appropriate allocation of capital in growth businesses," said Manoj Menon and Amrita Basu of Kotak Institutional Equities.
Tata Global Beverages has net cash of Rs 600 crore, the analysts noted.
"This deal could potentially be a win-win for Tata Global Beverages if it can leverage Starbucks' retail skills for effective utilization of its cash. However, cultural match would be a key operational challenge, in our view," Menon and Basu said.
Starbucks operates 17,000 cafes in 57 countries and has been planning to enter India for nearly eight years. In Tata, it says it has found a partner who has local knowledge and that will help it expand rapidly.
Although a lot of Indians will look forward to Starbucks' arrival in India, the going will not be very easy for the iconic brand, given the increasingly strong competition in the segment.
Homegrown chain Cafe Coffee Day already operates over 1,200 outlets across India. Others like Barista, owned by Italian coffee maker Lavazza, have around 300 outlets and Britain's Costa Coffee has 75. All of them have big expansion plans and are eyeing premium space in shopping malls and high streets to serve up hot cappuccino and lattes and cold frappes.
However, many point out, that the coffee market in India is still in its nascent stage and has huge growth potential.
The Kotak analysts say in-home coffee consumption in India is estimated to be around Rs 12 billion and the out-of-home coffee market is 1.2 times of that. While at the same time, in the US for instance, in-home coffee market is $6 billion and out-of-home is estimated to be a huge $41 billion.
Kotak has a "buy" rating on Tata Global Beverages with a target price of Rs 110.
At 10:00 am, Tata Global Beverages shares were up 3.2 per cent at Rs 101 on NSE.
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