Tata Tea: The right blend - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Tata Tea: The right blend

Oct 30, 2004

Performance Summary
Tata Tea Limited has reported an encouraging 8% growth in consolidated revenues during the September quarter. The company's net profits are up over 55% led by improvement on the operating margin front, as well as higher other income owing to dividend received this quarter. The company's India operations continued to show a good turnaround reporting over 15% topline growth. Improved operating margins and buoyant other income saw profits growing by a significant 52% for the domestic business.

(Rs m)2QFY042QFY05Change1HFY041HFY05Change
Income from operations7,0107,5617.9%13,80414,6316.0%
Operating Profit (EBDITA)1,2981,45011.7%2,4912,77111.3%
EBDITA margin (%)18.5%19.2% 18.0%18.9% 
Other income41126204.6%144132-8.7%
Interest (net)3113347.4%6326462.1%
Profit before Tax 8281,04726.4%1,6041,87316.8%
Minority interest (13) (15) - (32) (26)-
Share of profit/(loss) from associated undertakings (62) 43 - (62) 43 -
Profit after Tax/(Loss)49076155.3%1,0081,31130.1%
Net profit margin (%)7.0%10.1% 7.3%9.0% 
No. of Shares (m)56.256.2 56.256.2 
Diluted Earnings per share (Rs)34.954.2 35.846.6 
Price to earnings ratio (x)    8.8 

What is the company’s business?
Tata Tea is the largest integrated producer of tea in the world and has a market share of 23% in India. It has a total acreage of 24,500 hectares located in Kerala, Assam, Tamil Nadu and West Bengal and owns a majority stake in Consolidated Coffee Limited, the largest coffee company in Asia. Tata Tea's profile changed the day it acquired Tetley (FY01). From being a key player in a commodity industry (tea), it made an overnight transition to becoming the No. 2 globally in the branded tea market. Tetley has 29% share of the UK, 43% of Canada, 11% in the US and 19% of the Australian tea market. The company is looking to expand to regions in Asia Pacific and the Middle East.

What has driven performance in 2QFY05?
Sales: Globally, Tata Tea (including Tetley) has grown by nearly 8% during the September quarter. Of the total, non-India operations accounts for nearly 70% of consolidated revenues. Its Tetley subsidiary, which accounted for nearly 63% of consolidated operations, reported an improved 3% growth in 2QFY05 revenues (as compared to a 2% decline in 1QFY05). The effects of the promotional activity conducted in the June quarter seem to be making an positive impact on the topline. On the other hand, Indian operations were strong mainly owing to improved realisations on garden tea and strong performance of its branded tea operations. Together, both these entities led to the overall improved performance on a consolidated basis.

India operations
(Rs m)2QFY042QFY05Change1HFY041HFY05Change
Net Sales 2,0172,34916.5%3,8294,40715.1%
Operating Profit (EBDITA)43760738.9%69596238.4%
EBDITA margin (%)21.7%25.9% 18.2%21.8% 
Other Income9016988.4%204191-6.0%
Interest (net)23231.3%4645-2.2%
Profit before Tax44669856.6%7401,00135.2%
Profit after Tax35053252.2%57375732.0%
Net profit margin (%)17.3%22.6% 15.0%17.2% 
Effective tax rate (%)21.6%23.8% 22.6%24.4% 
No. of Shares (m)56.256.2 56.256.2 
Diluted earnings per share* (x)24.937.9 20.426.9 
Price to earnings ratio (x)    15.2 
(* annualised)      

Operating margins: Both India as well as consolidated performance reflected strength in operating margins. Lower staff costs and other expenditure head was the key driver of operating margins of India centric operations. Consumption of raw material increased during the quarter due to increased utilisation of auction bought teas in brands pursuant to lower production in the company's own plantations (because of adverse weather conditions). In case of global operations, lower material costs (tea prices) as well as the operational restructuring benefits seem the key operating margin drivers.

Cost break-up (India operations)
as a % of net sales2QFY042QFY051HFY041HFY05
Material cost3.4%9.7%6.9%14.5%
Staff cost31.9%27.8%31.6%26.8%
Other expenditure43.0%36.7%43.3%36.9%
Total expenditure78.3%74.1%81.8%78.2%

Net profit: For both India and global operations, the over 50% profit growth came largely owing to the increase in income from investments (dividend income). It is slated to come in during the September quarter. Excluding this, growth in net profits during the first half of 2004 would have been over 20% for both Tata Tea consolidated and Tata Tea India.

Over the last four quarters (India operations)
Sales growth (YoY)6.9%6.6%2.2%12.5%15.3%
OPM (%)21.9%13.3%0.3%17.2%25.9%
Net profit growth (YoY)13.6%-8.2%433.4%0.5%52.2%

What to expect?
At Rs 410, the Tata Tea stock trades at 8.8x 1HFY05 annualised consolidated earnings. Though the management had indicated at its analyst meet recently that FY05 EPS could be lower than FY04, we believe, Tata Tea has restructured itself well. The company's move towards hiving off some of its plantation businesses is also a positive move over the long term, as the potential to expand margins increases (plantation is a high fixed-cost business).

Equitymaster requests your view! Post a comment on "Tata Tea: The right blend ". Click here!


More Views on News

TATA CONSUMER Announces Quarterly Results (2QFY22); Net Profit Up 11.5% (Quarterly Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

For the quarter ended September 2021, TATA CONSUMER has posted a net profit of Rs 3 bn (up 11.5% YoY). Sales on the other hand came in at Rs 30 bn (up 9.1% YoY). Read on for a complete analysis of TATA CONSUMER's quarterly results.

TATA CONSUMER 2020-21 Annual Report Analysis (Annual Result Update)

Oct 22, 2021 | Updated on Oct 22, 2021

Here's an analysis of the annual report of TATA CONSUMER for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of TATA CONSUMER. Also includes updates on the valuation of TATA CONSUMER.

Tata Consumer Results Review: Net Profit Dips 42% but Margins Expand (Views On News)

Aug 4, 2021

Tata Consumer's India business impresses.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

What Led to the Massive Surge in the Stock of Jubilant FoodWorks? (Views On News)

Aug 18, 2021

Jubilant FoodWorks hits new high, surges 35% in a month on growth prospects.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 6, 2021 (Close)


  • Track your investment in TATA CONSUMER with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks