Stocks To Buy: Coffee stock could brew up to 50% gains, Nuvama says ahead of Q2 results

Shares of Vintage Coffee and Beverages Ltd. are in focus on Monday, November 3, as it received its first analyst coverage, ahead of its second quarter earnings which are due later in the day.

Nuvama has initiated coverage with a "buy" rating on the stock with a price target of ₹250 per share, a 50% potential upside from its previous close of ₹168 apiece.

The brokerage believes Vintage Coffee and Beverages is also "a strong candidate for a valuation re-rating given the ramp-up in volumes, its superior product mix and strong management team."

Vintage Coffee and Beverages and the global market

Vintage Coffee and Beverages manufactures and exports coffee and other beverages, and specialises in private label solutions for its clients. The Hyderabad-based company manufactures instant coffee, spray-dried coffee, agglomerated coffee and instant chicory coffee in tins, sachets, pouches and bulk form.

The global instant coffee market is expected to grow at a Compounded Annual Growth Rate (CAGR) of 6% between 2025-2030 to reach $46 billion, according to Nuvama.

Globally, 400 crore people consume less than 20 cups of coffee a year. At-home consumption is expected to reach 1.35 billion kg in 2025, with a combined total (at-home and out-of-home) volume of 1.61 billion kg, the brokerage added.

Scaling volumes

From an annual capacity of 6,500 MT, Vintage Coffee and Beverages is looking to scale its capacity to 11,000 MT by this fiscal year, the brokerage said, adding that firm is a small and emerging player in a huge market. It is looking to get customers who are looking to add new blends to their product kit or are launching a new brand.

Vintage Coffee and Beverages' manufacturing unit is running at full utilisation and its order book is full for the year. With new capacities coming on streak in a couple of years, Nuvama said it is confident of a ramp-up in volumes by 4 times over FY25-28, leading to a 74% sales CAGR over the same period.

Profitability to rise, return ratios to expand

The company is also diversifying into freeze-dried coffee (FDC), which has a high realisation and margin, with an annual production capacity of 5,000 MT by the end of the financial year 2027. This will take its overall annual production capacity to 16,000 MT, Nuvama said, adding that the company raised ₹215 crore in July to fund the same.

The brokerage said the company's earnings before interest, tax, depreciation and amortisation (EBITDA) growth over FY25-28 will be driven by a favourable shift in the product mix towards higher margin FDC and agglomerated coffee, coupled with rising sales volumes from new capacity additions and higher prices. With FDC contributing meaningfully from FY28, realisations and profitability are set to expand, Nuvama said.

Operating leverage from higher utilisation and leaner working capital cycles will enhance cash generation and strengthen the company's balance sheet, it added. The brokerage expects the return ratios to surpass 20% by FY27, underpinned by margin expansion, efficient capital allocation and strong demand visibility. It also expects profitability to rise by over five times in the FY25-28 period.

'Well-placed to deliver multi-fold earnings growth'

Nuvama said Vintage Coffee and Beverages is entering a high-growth phase, with capacity expanding by four times to 16,000 MT by FY27 and a favourable shift in the product mix towards premium FDC and agglomerated coffee.

The brokerage expects a 75% sales CAGR over FY25-28, with EBITDA and profit after tax (PAT) projected to compound at over 87% and 76% respectively, driven by operating leverage, higher realisations and a leaner working capital cycle, Nuvama said. With return ratios expected to exceed 20% by FY27, Vintage Coffee is well-placed to deliver multi-fold earnings growth, it added.

"Given its superior growth trajectory, improving return ratios and visibility from long-term client relationships, we believe the stock deserves a re-rating," Nuvama reiterated.

Shares of Vintage Coffee and Beverages Ltd. ended the previous session 0.9% higher. The stock is up 37% so far in 2025.

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