There has been a plenty of news flow that helped propel the Tata Coffee stock upwards by 131 per cent in the past one year. However, not all of the news immediately translates into better fundamental prospects for the company. One, global coffee prices have soared by over 60 per cent in the last six months on tighter global supplies. As Tata Coffee happens to be the only listed stock focussed mainly on coffee operations, it has attracted investor interest for this reason. However, rising coffee prices do not translate into proportionate gains on the company's bottomline because coffee also happens to be a key input for its global and domestic branded operations.

In the first nine months of 2010-11, the company reported a strong 40 per cent expansion in operating profits and a 22 per cent growth in sales in its standalone numbers. At the consolidated level, after including the operations of the US arm Eight O Clock coffee, which markets coffee beans and gourmet coffee, this moderated to a 1.3 per cent expansion in sales and a seven per cent growth in operating profits.

A second factor propelling the stock has been the company's January alliance with global coffee major Starbucks. This Memorandum of Understanding is for strategic collaboration between Tata Coffee and Starbucks in sourcing of coffee beans and use of roasting facilities to aid Starbucks retail plans for India. Given that the final contours of Starbucks' entry are yet to be decided, these plans may take time to fructify. Helped by these factors, the PE for the Tata Coffee stock has shot up from a discount to the FMCG universe to a premium over the past year.

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