Tata Tea: Dull export markets pull down profitability
Tata Tea Ltd. (TTL) has registered gross income of Rs 2.14 bn (down 5% YoY) and a net profit of Rs 261 mn (down 33% YoY) for the quarter ending 30th June 1999.
Tata Tea (FY99 Total Income Rs 8,832 m) is the world's largest integrated tea company, accounting for over 8% of the tea grown in India. The company, which is the second largest blender/marketer in the domestic packaged tea segment, operates the largest instant tea EOU outside the United States of America.
The main reason for this dismal performance is that Russia, a very large export market for Indian tea, suffered a financial crisis last year, from which it is as yet recovering. This apparently had an adverse effect on Indian tea exports. As a result of this, the domestic supply of tea increased, pulling down prices in line with the demand supply scenario. This decline in prices led to lower price realisations for the tea companies.
The company's top line growth has also suffered due to a substantial decline in tea production. This was due to the adverse weather conditions. Net profit margins have tumbled from 17.4% to 12.2% in the quarter under consideration due to lower production and sales realisations.
Although the Russia was hit by the crisis last year, Tata Tea managed to pull through FY99 registering a better bottomline. This was mainly due to the fact that although the tea prices had fallen, the price of packaged tea declined only marginally. However, with this price differential expected to narrow down, Tata Tea could be severely hit by falling realisations.
The stock has been rated as a 'SELL' mainly on account of the falling tea prices which are expected to hit the company's revenues as well as profits.
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