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Tata Coffee buys 34.3% in Barista for Rs 26 cr

Our Bureau

MUMBAI, July 25

THE less-than-a-year-old Barista Coffee Company Ltd, currently operating a chain of 38 espresso bars, merited an enterprise value of ``a little under Rs 100 crore'' in the deal involving Tata Coffee Ltd's (TCL) acquisition of 34.3 per cent equity in the company, Mr Rana Kapoor, Managing Director, Rabo India Finance Pvt Ltd, said here today.

Rabo India Finance was the sole lead manager for the Barista deal.

The cash deal has expanded Barista's original capital base of Rs 10 crore, by a further Rs 26 crore. Currently servicing some 14,000 consumers every day, Barista, which targets 75 bars by December, will have a turnover of Rs 32 crore along with an operat ing profit by fiscal-end. By the second year, its turnover should be Rs 64 crore with profit after tax, Mr Ravi S. Deol, Managing Director, Barista Coffee Company, said at a press briefing.

Besides TCL, Barista's employees hold eight per cent equity in the company with the original promoters, Turner Morrison, retaining the balance. Tata Tea Ltd (TTL) holds 52 per cent equity in TCL at 10 million kg annual production.

TCL had developed the coffee blends for Barista's bars. Positioned as a ``strategic alliance,'' the deal's critical element is Barista's new-found access to TCL's roasting facility. Vital for espresso bars, the backward linkage to roasting capacity place s Barista comfortably not just to expand in the region but also meet potential competition from global majors in the sector, like Starbucks.

Starbucks had at one time spoken to Barista for an alliance, while TCL was among the companies that sent product samples to Starbucks. The current deal does not prevent either partner from exploring more similar opportunities. ``But as strategic partners , it will be our endeavour to see that they take from us and we supply to them,'' Mr M.H. Ashraff, Managing Director of TCL, said.

He declined to put a figure to projected coffee offtake by Barista, following the deal.

The rationale behind the 34.3 per cent equity stake was explained as it representing Barista's funds requirement for the next 18-24 months, after which the retail outfit could think of borrowing or even an IPO here or abroad.

Barista's capital expenditure in the current fiscal is Rs 20 crore.

``Barista has the potential to be a global player,'' Mr R.K. Krishnakumar, Chairman, TCL, said, citing the deal as a mirror image of Tata Tea's earlier acquisition of an international outfit in Tetley.

Barista is projected to commence international operations this fiscal itself, with South Asia, West Asia, East Europe and Africa included in target markets. Where required, the company can look to leverage Tetley's presence, Mr Krishnakumar said.

However, while maintaining that Tata Tea, which has similar retail plans, was watching the Barista case, he said that beyond possibly hosting some premium Tetley teas, Barista will not become a common outlet for coffee and tea from the Tata stable.

The chain will stay focussed in the main on coffee. For the Taj group, a small business potential gets opened up, courtesy Barista's need to outsource snacks, estimated annually at about Rs 6-7 crore.

`Retailing to touch $1.7 b by 2005'

Mr Rana Kapoor said that Rabo India Finance estimates the domestic organised market in retailing, currently valued at $130 million, to grow to $1.7 billion by 2005.

Within that, the share of foods services, valued currently to be worth $15 million, will rise during the period to $750 million, he said.

Pic.: (From left) Mr M.H. Ashraff Managing Director, Tata Coffee Ltd, Mr Rana Kapoor, Managing Director, Rabo India Finance Pvt Ltd, and Mr Ravi Deol, Managing Director, Barista Coffee Company Ltd, at a press conference in Mumbai on Wednesday.

Picture by Paul Noronha