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Tata Tea's dissenting profit growth - Views on News from Equitymaster
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  • Jun 17, 2000

    Tata Tea's dissenting profit growth

    Tata Tea has registered a YoY 3.3% drop in the net profits to Rs 1.2 bn in FY00. The drop in the profit was due to decline in production and higher employee costs.

    The company's sales growth has been subdued due to decline in tea prices particularly in South India. Also the entire North Indian tea growing regions were affected by severe drought.

    Operating margins of the company declined to 16.6% (FY99-23.1%) due to increase in the cost of inputs by 19.2% and rise in the staff cost by 16.6% during the FY00. All these factors had an adverse impact on company's bottomline.

    (Rs m) FY1999 FY2000 Change
    Sales 8,847 9,221 4.2%
    Other Income 165 481 191.6%
    Expenditure 6,807 7,689 13.0%
    Operating Profit (EBDIT) 2,040 1,533 -24.9%
    Operating Profit Margin (%) 23.1% 16.6%  
    Interest 181 176 -2.5%
    Depreciation 177 187 5.5%
    Profit before Tax 1,848 1,651 -10.7%
    Other Adjustments   -  
    Tax 560 405 -27.7%
    Profit after Tax/(Loss) 1,288 1,246 -3.3%
    Net profit margin (%) 14.6% 13.5%  
    Earnings per share 26.5 22.2  

    The other income of the company jumped up by 192% to Rs 481 m as a result of higher profit on sale of investments and dividend received from a subsidiary company.

    In March 2000, Tata Tea acquired the entire shareholding of the Tetley Group UK through its subsidiary company. To finance this large acquisition the company issued Global Depository Shares (GDS), which were fully subscribed. This acquisition will enable the company to consolidate its presence in the International market.

    At the current market price of Rs 343, Tata Tea is available at a P/E ratio of 15.5 times its FY00 earnings with a market cap to sales ratio of 2.1 times. In the past, the average P/E has been in the range of 25-35 times. The company's earnings are affected by volatile tea prices. It will be able to reduce its risk profile by an entry into other consumer food products segment.



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