Tata Tea, one of the largest integrated producers of tea in the world, has declared an 18% decline in 2QFY02 topline and a 3% decline in net profits (excluding extraordinary income). However, if we include an extraordinary income of Rs 190 m received by way of dividends from subsidiaries, then 2QFY02 profits zoom 45% YoY.
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*
Though the company's sales volumes are under pressure, the company's increasing grip on its operating expenditure has resulted in a significant 270 basis points improvement in operating margins to 28.8%. Tata Tea's control on its raw material costs and other expenses has somewhat eased the pressure on the company. Consumption of Raw Materials during the quarter was lower on account of higher consumption of own garden teas in blends and resultant lower auction purchases.
Improving cost advantage
Raw material expenses
On a consolidated half yearly basis, Tata Tea's bottomline has shown a 16% improvement YoY (excluding extraordinary items effect). But the company's topline has declined 10% during the period. Here too, the improvement in operating margins is evident.
The company is restructuring itself by exiting joint ventures. The company currently holds 50% of the equity in Tata NYK (a joint venture with NYK of Japan). Of the 50% equity held, Tata Tea has decided to divest 40% in favour of NYK, Japan. The resultant capital gains of Rs 76.9 m from this divestment is expected to be reflected in the third quarter of the current financial year. The company has also decided to wind up Tat-Hitachi Sales (Japan) Ltd., a join venture company with Hitachi. However, the management does not expects negligible gain from this divesture.
At the current price of Rs 140 the stock trades at a P/E of 8x annualised 1HFY02 earnings (excluding extraordinary items). Though the company's topline is under pressure, the company's improving focus on operations, its 'Tetley' and 'Barista' acquisitions make Tata Tea the company to watch out for in future.
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