Tata Tea's tryst with difficult market conditions continues. The beverage major reported a marginal 2.5% YoY rise in net sales during September quarter, that too aided by higher exports. Domestic sales was lower on account of the continued slowdown in the organized retail market for branded teas and lower CTC tea prices in auctions (which have fallen by around 20% since January this year).
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Profit after Tax
Net profit margin (%)
Effective tax rate (%)
No. of Shares (eoy) (m)
Diluted earnings per share*
But still the topline performance was better in the quarter as compared to the March and June quarter, where Tata Tea witnessed a 7% and 4% fall in topline YoY respectively. However, a nearly 12% rise in operating costs took a toll on the company's operating margins, which fell a significant 640 basis points to 22.4% in 2QFY03. Higher expenses were a result of increased brand promotion expenses and also, higher raw material costs due to exports.
The extraordinary income represents the dividend income of Tata Tea from its subsidiaries. This income saw a significant fall YoY during the quarter, as some part of the dividend income had already been received in the June quarter of FY03. The company's profits plunged by 41% YoY due to this. Excluding this dividend income component, Tata Tea's net profits fell by over 20% YoY in 2QFY03.
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 8% YoY sales growth during the first half of the current year (1HFY03) and EBIT growth of 6% during the same period.
At the current price of Rs 155 the stock trades at 8.7x annualised 1HFY03 earnings (including dividend income) 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. And this is likely to continue in the medium term. But in the long run, the Tetley acquisition and 'Barista' are likely to reflect in the company's valuations.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407