Tata Coffee today said it will increase its instant coffee production by 29 per cent to 8,500 tonnes by the year-end by setting up a sophisticated extraction unit, a top company official said today.

"We are setting up a highly sophisticated instant coffee extraction unit, which will increase our capacity to 8,500 tonnes by end of this year," Tata Coffee Managing Director H Huq told reporters on the sidelines of the India International Coffee Festival here.

The current instant coffee production capacity of the company is 6,600 tonnes, he added.

On the third quarter performance of the company, Huq said profits have been affected due to the poor performance of its US-based subsidiary, Eight O'Clock Coffee Co, which has been affected by high commodity prices.

"Despite the performance, we have been able to hold our market share. With commodity prices coming in line and growth in volumes, our margins (profit) will go up," he noted.

Tata Coffee had posted a 51.67 per cent dip in net profit to Rs 24.03 crore for the quarter ended December 31, 2011, compared to Rs 49.73 crore in the year-ago period.

Tata Coffee -- one of India's major exporters of the brew -- is a part of the salt-to-software Tata Group.