Starbucks Corp , the world's largest coffee company, is finalizing its retail partnership with India's Tata Coffee Ltd and hopes to announce the deal by the end of this month, a senior official of the Indian company said on Thursday.

In early 2011, the Seattle-based company signed a pact with the Tata group firm to buy coffee from India and explore opening retail stores in the country.

We are close to finalizing it and are working on the final details. We hope to make an announcement very soon, MD Kumar, chief financial officer of Tata Coffee told Reuters.

Tata Coffee plans to open a Starbucks coffee shop by the end of this year, Managing Director Hameed Huq told reporters on the sidelines of the International Coffee Festival in Delhi earlier in the day.

In India, where tea has long been the beverage of choice, an increasingly affluent and urban population with westernized tastes is embracing cafes, paying much more for a cup of coffee than at traditional restaurants.

The two companies had planned to open the first Starbucks outlet in India by mid-2011, but the plan was delayed on account of difficulties in acquiring real estate, Tata Coffee Chairman R.K. Krishnakumar had told Reuters in August.

INSTANT COFFEE EXPANSION

Tata Coffee, which makes and exports instant coffee and plantation coffee, plans to invest $10 million to increase its instant coffee capacity by 2,000 tonnes from the 6,500 tonnes, Kumar told Reuters.

We will be adding capacity at our existing plant near Madurai... It should be operational by the third quarter of the next financial year, he said. Madurai is in the southern India state of Tamil Nadu, near where they also have plantations.

Tata coffee exports 60 percent of its instant coffee to Russia and the rest to Singapore and Japan. Instant coffee division contributes about 50 percent to its revenues and the company expects robust demand for instant and plantation coffee in FY13, despite sluggish consumer demand globally.

India, the world's fifth biggest producer, accounts for only 4.5 percent of the world's output, but exports 70-80 percent of its produce.

Our orderbook for the fourth quarter is full and we have been receiving good orders for the first quarter of next year, Kumar said. The nest fiscal year stars in March, 2012.

However, Tata Coffee sees demand for its U.S. coffee brand, Eight O' Clock Coffee, which has been hurt by rising raw material costs in the current quarter and the last, to improve as commodity costs have begun to ease.

Tata Coffee on Wednesday saw its consolidated net profit fall 34 percent to 215.1 million rupees ($4.27 million) in Oct-December

Shares of the company ended 0.97 percent up at 865.95 rupees in a firm Mumbai market on Thursday that closed at a 6-week high.

($1= 50.38 rupees)

(Editing by Harish Nambiar)

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