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.
Tata Tea: Identifying its blend - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 13, 2004

    Tata Tea: Identifying its blend

    Tea major, Tata Tea, is in the thick of news in recent times. The company reported strong FY04 results and there are reports that it is considering exiting the tea plantations altogether. Here we analyse the company's recent performance and its prospects.

    If you look at the table below, which depicts the performance of its Indian operations, the company has reported a marginal 3.6% topline growth. However, improved operating margins, lower interest burden and depreciation provisioning has resulted in the company reporting nearly 30% bottomline growth during FY04. With such decent numbers, why is the company looking to exit its plantations in the first place?

    (Rs m) 4QFY03 4QFY04 Change FY03 FY04 Change
    Income from operations 1,932 1,973 2.2% 7,556 7,827 3.6%
    Other income 293 318 8.5% 512 551 7.6%
    Expenditure 2,021 1,968 -2.7% 6,697 6,856 2.4%
    Operating Profit (EBDIT) -90 6 -106.1% 859 971 13.0%
    Operating Profit Margin (%) -4.6% 0.3%   11.4% 12.4%  
    Interest (net) 31 26 -16.4% 144 99 -30.9%
    Depreciation 63 54 -13.9% 227 220 -2.7%
    Profit before Tax 110 244 121.5% 1,001 1,202 20.1%
    Tax 75 57 -23.7% 295 287 -2.7%
    Profit after Tax/(Loss) 35 187 433.4% 706 915 29.6%
    Net profit margin (%) 1.8% 9.5%   9.3% 11.7%  
    No. of Shares (m) 56.2 56.2   56.2 56.2  
    Diluted Earnings per share (Rs)* 2.5 13.3   12.6 16.3  
    Current P/e ratio (x)         23.2  
    *(annualised)            

    The answer to this is very simple. Over the years, Tata Tea has transformed itself rather successfully into a branded player in the tea segment. The acquisition of UK based Tetley a few years back consolidated its presence as a branded tea major globally. The plantations, which at one time were considered a necessary part of the backward integration strengths of tea companies, have now sort of become a losing proposition. This exposes Tata Tea to commodity cycles in the tea business (tea prices continue to be at historically low levels), it adversely affects the margin profile of the company and costs are a drain on the overall FMCG folio.

    Cost as % of sales (India operations)
    (Rs m) 4QFY03 4QFY04 FY03 FY04
    Material cost 39.5% 38.3% 17.3% 18.7%
    Staff cost 32.9% 30.4% 30.9% 29.5%
    Other expenditure 32.3% 31.0% 40.4% 39.4%
    Total expenditure 104.6% 99.7% 88.6% 87.6%

    Moreover, when the Tata's bought over Tetley, the idea was that Tetley will now source their tea from Tata Tea's gardens in India. Though it did happen, but overall, the company realised that by divesting this side of its business, all these negatives go away from its books and it merely sources tea from these very plantations (or may be other plantations globally) at competitive rates and changes its whole business profile. In the fourth quarter, though the company finished with a four fold increase in profits, in reality, if you look at the operational level, the company was hardly profitable (0.3% operating profit margin). The divestment of plantations (if it happens) is likely to change all that and make the Indian operations even more profitable.

    A look at the consolidated global performance of the company (including Tetley) reveals that overall Tata Tea has grown by nearly 5% globally during FY04. Of the total, non-India account for nearly 75% of consolidated revenues. On the consolidated front too, higher operating margins, lower interest burden and depreciation provisioning as well as higher other income resulted in profits growing by a significant 148% YoY during FY04. The non India operations were key profit driver for the company. Just to put things in perspective, non India operations contribution to consolidated profits increased from 14.5% in FY03 to over 55% in FY04.

    Consolidated numbers
    (Rs m) FY03 FY04 Change
    Income from operations 29,518 30,857 4.5%
    Other income 160 250 56.6%
    Expenditure 25,345 25,949 2.4%
    Operating Profit (EBDIT) 4,173 4,908 17.6%
    Operating Profit Margin (%) 14.1% 15.9%  
    Interest (net) 1,656 1,320 -20.2%
    Depreciation 888 827 -6.9%
    Profit before Tax 1,789 3,011 68.3%
    Tax 626 906 44.7%
    Minority interest -107 -84 -21.5%
    Share of profit/(loss) from associated undertakings -231 29 -112.7%
    Profit after Tax/(Loss) 825 2,050 148.4%
    Net profit margin (%) 2.8% 6.6%  
    No. of Shares (m) 56.2 56.2  
    Diluted Earnings per share (Rs) 14.7 36.5  
    Current P/e ratio (x)   10.4  

    Its Tetley subsidiary, which accounts for over 65% of consolidated operations, reported a 1.8% growth in FY04 revenues. The performance is however much better than this, as last year's numbers include Australian operations, which it hived off in FY04. Also, the preceding year's sales included business in the USA that has since been discontinued. At the profit before tax level, the company has reported an 86% growth YoY. Net profit growth stood at over 70% at Pound 16.1 m in FY04.

    Tetley Group (98.6% subsidiary) results
    (Pounds m) 4QFY03 4QFY04 Change FY03 FY04 Change
    Income from operations 55.4 85.0 53.4% 251.5 256.0 1.8%
    PBT -3.6 5.9 - 12.8 23.8 85.9%
    PAT N. A. N.A. - 9.4 16.1 71.3%

    At the current price of Rs 378, Tata Tea trades at 10.4x FY04 consolidated earnings. The company is seeing the benefits of the global restructuring it undertook. Lower interest rates helped it restructure its debt and improved its consolidated cash flows. On the India side, plantations continue to be the only blip in its FMCG focus. With the management intent on addressing that too, the company's path for growth is clear. If it succeeds in hiving off its plantations, the whole profile of the company will get a big boost and of course, valuations will follow.

     

     

    Equitymaster requests your view! Post a comment on "Tata Tea: Identifying its blend". 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 Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    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?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    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 22, 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. - TILAKNAGAR IND. COMPARISON

    Compare Company With Charts

    COMPARE TATA GLOBAL BEV. WITH

    MARKET STATS