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Tata Tea: Performance brews up
Aug 12, 2009

Performance summary
  • Consolidated revenues grow by 16% YoY, while standalone sales rise by 33% led by both volume growth and price increases.
  • The consolidated operating margins improve marginally on account of lower ad spends and other expenses.
  • The consolidated net profits (excluding extraordinary items) increase by 150% YoY. Standalone profits improve by 13% YoY.


Consolidated Financial Performance
(Rs m) 1QFY09 1QFY10 Change
Income from Operations 11,175 12,956 15.9%
Expenditure 9,715 11,203 15.3%
Operating Profit (EBDITA) 1,460 1,753 20.1%
Operating Profit Margin (%) 13.1% 13.5%  
Other Income 74 46 -37.8%
Interest (Net) 109 53 -51.8%
Depreciation 222 245 10.1%
Profit before Tax 1,202 1,502 24.9%
Extraordinary income/(expense) 92 (1,858) -
Tax 440 (28)  
Profit after Tax/(Loss) 854 (329)  
Share of profit/(loss)from associates 10 (50)  
Minority interest (107) 183  
Group consolidated net profit 757 (196)  
Net profit margin (%) 6.8%    
No. of Shares (m) 61.8 61.8  
Earnings per share (Rs)*   97.9  
P/E (x)*   8.7  
* 12months trailing

What has driven performance in 1QFY10?
  • Tata Tea reported consolidated sales growth of 16% YoY during 1QFY10 led by strong performance of brands and price increases taken to offset input cost escalations. The international business saw a 9% YoY growth, while domestic sales improved by 33% YoY driven by strong performance of the branded tea operations reflecting both the volume growth and price increases.

  • The tea segment contributing 76% to the total consolidated sales increased by 11% YoY. The coffee segment saw a growth of 35% YoY led by higher prices. It now contributes 24% to the total sales. The company maintained its volume leadership in the Indian market, while being second in value terms. Among its overseas businesses, its business in Canada outperformed its other markets in the UK, the US and Australia. Tata Tea's mineral water business (Himalaya) suffered on account of downtrading witnessed in the institutional category.

    Segment breakup (%) 1QFY09 1QFY10 Change
    Tea 8,789 9,792 11.4%
    % of sales 78.7% 75.6%  
    PBIT margins 11.7% 10.4%  
    Coffee 2,263 3,052 34.9%
    % of sales 20.2% 23.6%  
    PBIT margins 11.9% 16.9%  
    Others 122 110 -9.3%
    % of sales 1.1% 0.9%  
    PBIT margins -42.8% -53.2%  
    Unallocated 1 1 30.0%
    Total 11,175 12,956 15.9%

  • The consolidated margins improved by 0.5% YoY mainly led by lower ad spends and other expenses as a percent of sales. However, the raw material costs increased by 28% YoY due to hardening commodity costs and inflationary increase in input costs. On a standalone basis, the margins declined from 17% to 15.9% during 1QFY10 due to higher raw material costs.

  • Excluding the extraordinary items (forex loss, reorganization costs relating to restructuring of business and amortization of amounts incurred on Employee Separation Scheme) the consolidated net profits surged 150% YoY during 1QFY10. The profit before tax improved by 25% YoY led by higher operating profits and lower interest costs. The standalone profits (excluding extraordinary item) increased by 13% YoY.

  • The company, during the quarter increased its stake in its subsidiary Mount Everest Mineral Water Limited from 35.99% to 40.11%.

What to expect?
At the current price of Rs 854, the stock is trading at a price to earnings multiple of 8.7 times its 12-month trailing consolidated earnings. The company has invested heavily over the last year to transform it from a tea and coffee company to a wider beverage business spanning six product categories. It is looking at expanding into new regions and is targeting water and Ready-to-Drink segments for faster growth.

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