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Tata Tea: Analyst meet extracts - Views on News from Equitymaster
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Tata Tea: Analyst meet extracts
Aug 25, 2005

Leading tea major, Tata Tea, had recently organised an analyst meet to discuss its performance and future growth strategies. Here are some of the key extracts of the meeting.

  • In the domestic market, the company has recorded the highest revenue growth of 5% YoY during 1QFY06, higher as compared to 1% for HLL and 3% for other companies. Local players reported negative growth of 8% YoY. The portfolio of regional brands recorded the highest first quarter sales in the past 5 years.

  • VAT had huge impact and the company saw de-stocking in the months of February and March, while re-stocking took place in May and June. However, the net impact was favourable.

  • Tata Tea Gold managed to capture 2% market share within 14 months of its launch. Agni’s brand volume growth stood at 38% post restaging, Chakra Gold achieved 7% volume growth amidst fierce competition, Kanan Devan reported overall volume growth of 17% and Gemini reported 4% volume growth. The tea bag segment grew by 28% YoY.

  • Tata Tea has improved capacity utilization through bought leaf operations. The company recently sold certain coffee and tea plantations for Rs 550 m, but yet has 2 estates left on its books.

  • On the financials front, the company managed an 8% YoY growth despite selling its South Indian plantations, which contributed Rs 105 m in revenues during 1QFY05.

  • The company’s cost of debt stood at below 6%, debtor level was 22 days and inventory of around 15-20 days.

  • As far as Tetley is concerned, sales were flat during the quarter. However, the US and developing markets like Pakistan, Bangladesh and Russia performed strongly. UK reported a 3% dip in sales, mainly due to phasing out of promotions, competitive pressure and Black Tea sales showing de-growth. It must be noted that the UK is Tetley’s single largest market. But, the margins improved in the country and market share remained stable. In Canada, the company has a 10% lead over the next competitor in specialty teas, which also displayed good offtake. Poland also showed strong performance.

  • On the margins front, there is some pressure but it was offset due to lower tea costs. The company has increased its advertising budget especially in support of GB fruit and herbal range of teas.

  • In the future, the company plans to merge Tetley with Tata Tea creating a larger consolidated entity.

  • Currently, Tata Tea does not have a major presence in the US and is on the hunt for a major acquisition either in this country or Latin America. Tetley does not have a big brand image there, but at the same time the market has huge potential. The company plans to launch its Silver Range (Strawberry, Raspberry, Summer berries) of teas soon in the US to attract new consumers. Growth in India has been marginal as compared to the growth in the US markets as the young are slowly consuming more herbal tea in the western countries.

  • The company recently launched single tea sachets in India under the Tetley brand in flavours like Ginger, Lemon, Early Grey and Masala. This is a high margin business and the response has been satisfactory. However, the company has no plans of launching iced and flavoured tea in the local market here.

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