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Tata Tea: An improving blend

Jul 27, 2001

Tata Tea Limited, one of the world's largest integrated tea companies has declared a significant 85% jump in its bottomline during 1QFY02. This growth is when we don't consider the extraordinary income accrued to the company in the first quarter of last year.

(Rs m)1QFY011QFY02Change
Net Sales1,9251,923-0.1%
Other Income118 
Expenditure1,6841,635-2.9%
Operating Profit (EBDIT)24128919.8%
Operating Profit Margin (%)12.5%15.0% 
Interest 5952-11.5%
Depreciation5150-1.2%
Profit before Tax13220454.3%
Extraordinary items304-9 
Tax5043-14.0%
Profit after Tax386152-60.6%
Net profit margin (%)20.1%7.9% 
Effective tax rate (%)37.8%21.0% 
No. of Shares (eoy) (m)56.256.2 
Diluted earnings per share*6.910.8 
P/E ratio 14.6 
(* annualised)   

Tata Tea posted a net profit of Rs 152 m in 1QFY02 as compared to Rs 83 m declared in 1QFY01. In the first quarter of last year the company accrued an extraordinary income of Rs 304 m in the form of dividend from subsidiary companies & interim dividends received on other investments. The absence of dividends in 1QFY02 was thus responsible for decline in the company`s overall profit YoY.

On the operational front, the company showed a marginal decline in topline, but its grip on expenditure led to a 250 basis points increase in operating margins. A 24% decline in the company's raw material cost to Rs 383 m was largely responsible for the improvement in margins.

A 12% decline in interest costs aided the margin growth. The net margins (excluding extraordinary income) saw a significant improvement of 360 basis points to 7.9%.

In accordance with the requirements under the new accounting Standard AS-22 relating to the compulsory provision for deferred taxation (arising mainly from the difference between the book depreciation and the income tax depreciation, carry forward losses in Tata Tea's south India operations, together with provisions for bad and doubtful debts), the tax depreciation, carry forward losses as on June 30, 2001 are higher by Rs 9 m. Tata Tea's deferred tax provision relating to the previous years amounting to Rs 343 m has been adjusted against the general reserve, which now stand at Rs 7.8 bn.

At Rs 158 the stock trades at 15 times annualised 1QFY02 earnings. The stock is likely to see an improvement in the near term owing to its improved operational performance. The news that the company's 51% subsidiary Tata Coffee has taken a 34% stake in upmarket coffe shop chain 'Barista' may also create interest in the stock.

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