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Tata Tea: Dividend income saves day…

Jul 30, 2002

On first glance, Tata Tea Limited seems to have reported a much better performance in the first quarter of FY03, as compared to the dismal showing in 4QFY02. The company finished 1QFY03 with over 27% net profit growth during the June quarter. But in this, it was aided by Rs 78 m earned as dividend income (part of other income). Excluding this, on a like to like basis, Tata Tea would have finished 1QFY03 with a 24% drop in net profit.

(Rs m) 1QFY02 1QFY03 Change
Net Sales 1,923 1,852 -3.7%
Other Income 18 90 402.2%
Expenditure 1,635 1,585 -3.1%
Operating Profit (EBDIT) 289 268 -7.3%
Operating Profit Margin (%) 15.0% 14.5%  
Interest (net) 52 54 4.8%
Depreciation 50 52 3.6%
Profit before Tax 204 251 22.8%
Extraordinary items -9 0 -
Tax 43 58 33.7%
Profit after Tax 152 194 27.1%
Net profit margin (%) 7.9% 10.4%  
Effective tax rate (%) 21.0% 22.9%  
No. of Shares (eoy) (m) 56.2 56.2  
Diluted earnings per share* 10.8 13.8  
P/E ratio   11.8  
(* annualised)      

The company's topline witnessed a 4% drop during the quarter. As per the company release, this has been due to the continued slowdown in the organised retail market for branded teas' and lower CTC tea prices at auctions which have fallen by around 21% since January this year. But still the topline performance was better in the quarter as compared to the March quarter, where Tata Tea witnessed a 7% fall in topline YoY. Tata Tea's cost control efforts during the June quarter are also commendable.

The strong performance of The Tetley Group Ltd. (the company's 98.6% subsidiary), is not reflected in the above results. The subsidiary has reported a 10% sales growth during the June quarter and EBIT growth of 5% over the first quarter of the previous year.

Cost break-up
(Rs m) 1QFY02 1QFY03 Change
Material cost 235 295 25.6%
Staff cost 593 565 -4.7%
Other expenditure 807 724 -10.2%
Total expenditure 1,635 1,585 -3.1%

At the current price of Rs 163 the stock trades at 11.8x annualised 1QFY03 earnings and market cap to sales of 1.2x. The continued downtrend in the tea prices and undercutting by competitors is making life difficult for Tata Tea. But in the long run, the Tetley acquisition and 'Barista' are likely to reflect in the company's valuations.


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