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Tata Tea charts out aggressive growth strategy - Views on News from Equitymaster
 
 
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  • Sep 22, 1999

    Tata Tea charts out aggressive growth strategy

    Indian tea major, Tata Tea has drawn up an aggressive strategy to double its packaged tea market share from the current 21% to over 50% in 2 to 3 years, as per newspaper reports. Tata Tea (FY99 total income Rs 8.8 bn) is the world’s largest integrated tea company and accounts for over 8% of the tea grown in India. The company is the second largest blender/marketer in the domestic packaged tea segment and operates the largest instant tea export oriented unit (EOU) outside USA.

    The tea major is looking at introducing new brands in the premium and the lower segments to enhance its bottom line and market share. It has also decided to source more tea from auctions, rather than go in for acquiring tea plantations. Currently, the company sells over 75,000 tpa of packaged tea, out of which, 65,000 tpa is from its own gardens.

    The company will also strengthen its rural distribution network, which it has identified as a major growth area. Tata Tea has also planned to set up a new research and development facility in West Bengal, to develop new blends.

    The plan is a definite exercise to shift from commodity to branded tea segment in order to improve margins. The target of doubling market share, though ambitious, is not far fetched. The company's proposed brand introductions and strengthening of the distribution network might propel it towards achieving the objective.

    On the flip side, the branded tea segment is very competitive, with players like Hindustan Lever aggressively competing for market share. The coming months are likely to witness new brand launches and hence increased advertising spend by the tea majors. Since, Tata Tea is also looking out to acquire Tetley, it will not be easy for it to sustain the increased advertising burden.

    Market view:

    In the light of improving tea prices and the company's dominating position, some analysts have rated the stock as a ‘Buy'. The proposed growth strategy will also be viewed favourably by the market.

     

     

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