X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Brewing a global mix... - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 8, 2000

    Brewing a global mix...

    The economic liberalization process in India has created a new breed of companies. These are the global aspirants. Included in this group are companies that have initiated moves or have set up bases in international markets, by acquisition, alliances or green field ventures. Tata Tea, however has opted for a more aggressive approach. The company is acquiring UK based Tetley, the world's second largest tea brand.

    Tata Tea is the largest integrated producer of tea in the world. The company's assets include 24,500 hectares of tea estates, a 100 percent export oriented instant tea factory and a host of tea brands including Tata Tea, Kanan Devan, Chakra and Agni. Tata Tea comes in second after the venerable Hindustan Lever Limited (HLL) (a 51 percent subsidiary of Unilever Plc.) in the packet tea segment. The company also has majority stakes in Consolidated Coffee Limited (CCL) and Asian Coffee Limited (ACL). While CCL is the largest coffee company in Asia, ACL is engaged in the manufacture of instant coffee.

    Tata Tea, initially an only plantation company, had made a foray into the branded packet tea segment in 1983. It has since garnered a market share of 23 percent. The management has aggressively ploughed back funds into the process of launching and building new brands. In volume terms, the branded packet segment accounts for 84 percent (financial year 1999) of the company's tea sales. The graduation from being a commodity to a product driven company has enabled Tata Tea to increase its value added output. This has resulted in better margins even as the high level of integration has given it a strong control over its cost structure.

      2QFY2000 2QFY1999 Change
    Net Sales 2,313 2,154 7%
    Other Income 132 117 13%
    Expenditure 1,718 1,396 23%
    Interest 33 39 -17%
    Depreciation 48 48 1%
    Profit before Tax 646 787 -18%
    Tax 184 234 -21%
    Profit after Tax 462 553 -17%
    Net profit margin 20.0% 25.7%  

    The acquisition of Tetley is the final step in converting Tata Tea into a product driven company. The acquisition, which is likely to cost of over US$ 400 million, is to be routed through a special purpose vehicle (SPV). Tata Tea will infuse upto US$ 150 m into the SPV for the purpose of funding the acquisition.

    Tata Tea has much to gain from this acquisition. First and foremost would be the brand 'Tetley'. The brand has a global appeal as against the limited domestic appeal of the 'Tata' brand. The complementary nature of the brands would enable Tata Tea to dominate the global tea market. The other gains would be in terms of access to Tetley's superior technology and global sourcing skills - two factors that would be critical as global competition heats up. These factors will enable the company in reducing costs and improving efficiency, thus improving overall competitiveness.

    The acquisition of Tetley has not been devoid of controversy. Sara Lee and Nestle dropped out early in the race due to the high price being demanded by the promoters of Tetley. In light of this, Tata Tea had relatively little competition in acquiring the company. This has raised concerns regarding the possibility that the company may have over paid for Tetley.

    Tata Tea's decision to acquire Tetley through a SPV, into which it will infuse funds, is unlikely to settle well with the shareholders of the company. This is mainly due to the fact that though there will be an immediate equity dilution (after the planned GDR issue), Tata Tea will not earn revenues on account of this investment in the near future (as an immediate merger is not planned). This will lead to a dilution in earnings and also a reduction in the return on capital and the return on equity. Moreover, the benefits of a merger (like cost reduction) will be further postponed. The shareholders will thus have to bear the burden of the investment without any quid pro quo (in terms of enhanced revenues and profits).

    On the business front, Tata Tea has the unenviable task of competing with HLL in the domestic market. HLL is the leading consumer products company in India and has recently been conferred the title of being the number one consumer products company in the world by a leading international magazine. HLL is increasingly becoming aggressive in its food and related businesses to generate growth. This could lead to the intensification of competition, and consequently, a thinning out of margins.

    Tata Tea's move to acquire a leading global brand will definitely give a thrust to its global ambitions. However, the rising competition in the domestic and international markets could still spoil the party.

     

     

    Equitymaster requests your view! Post a comment on "Brewing a global mix...". Click here!

      
     

    More Views on News

    GSK Consumer: On the Recovery Path (Quarterly Results Update - Detailed)

    Jun 20, 2017

    While GSK consumer reported muted revenue growth, volumes are seen to be recovering.

    Apex frozen food Ltd. (IPO)

    Aug 21, 2017

    Should you subscribe to the IPO of Apex Frozen Foods Ltd?

    A Little Gem in the FMCG Sector (Sector Info)

    Jul 18, 2016

    Will investing in Bajaj Corp yield high returns on account of a rural revival in sight?

    Parag Milk Foods Limited (IPO)

    May 4, 2016

    Should you subscribe to Parag Milk Foods' initial public offering?

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TATA GLOBAL BEV. SHARE PRICE


    Aug 21, 2017 (Close)

    TRACK TATA GLOBAL BEV.

    • Track your investment in TATA GLOBAL BEV. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    MORE ON TATA GLOBAL BEV.

    TATA GLOBAL BEV. - NESTLE COMPARISON

    Compare Company With Charts

    COMPARE TATA GLOBAL BEV. WITH

    MARKET STATS