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Tata Tea: Poor blend in 1HFY01

Nov 1, 2000

Tea major, Tata Tea Limited, has declared a minor 2% drop in turnover in 2QFY01. However, a 52% drop in its other income and a 53% surge in its net interest has resulted in a 22% decline in its bottomline.

(Rs m) 2QFY00 2QFY01 Change 1HFY00 1HFY01 Change
Sales 2,313 2,275 -1.6% 4,448 4,200 -5.6%
Other Income 132 63 -52.3% 133 368 176.4%
Expenditure 1,718 1,682 -2.1% 3,370 3,366 -0.1%
Operating Profit (EBDIT) 595 593 -0.4% 1,078 834 -22.7%
Operating Profit Margin (%) 25.7% 26.1%   24.2% 19.8%  
Interest (Net) 33 50 53.1% 83 109 31.0%
Depreciation 48 49 1.0% 96 99 4.0%
Profit before Tax 646 557 -13.8% 1,033 994 -3.8%
Tax 184 197 6.8% 310 247 -20.5%
Profit after Tax/(Loss) 462 361 -22.0% 723 747 3.3%
Net profit margin (%) 20.0% 15.8%   16.3% 17.8%  

Tata Tea is the largest integrated producer of tea in the world with a market share of 23%. It cultivates tea on 24,500 hectares of land spread across Kerala, Assam, Tamil Nadu and West Bengal. It owns a majority stake in Consolidated Coffee, Asia's largest coffee company. The company recently acquired the UK-based Tetley, which has a 7% share (valued at US$ 600 m) of the world tea market.

Its interest costs are likely to surge even more as a result of the Tetley acquisition. On a half yearly basis, the company's turnover has declined 6%. However, sale of investments and some assets in the first quarter has resulted in a 176% surge in its other income in the first half of FY01. This is the single most important reason that has helped Tata Tea declare a 3% growth in bottomline in 1HFY01.

Excluding other income
(Rs m) 2QFY00 2QFY01 Change 1HFY00 1HFY01 Change
Profit before Tax 514 494 -3.9% 900 625 -30.6%
Tax 129 124 -3.9% 225 156 -30.5%
Profit after Tax 386 371 -3.9% 675 469 -30.5%
Net profit margin (%) 59.7% 66.5%   15.2% 11.2%  
No. of Shares (eoy) (m) 48.6 56.2   48.6 56.2  
Diluted no. of shares 56.2 56.2   56.2 56.2  
Earnings per share*       24.0 16.7  
Current P/e ratio         10.4  

If we take out the other income from the profit before tax and then deduct 25% from that as tax, the bottomline shows a 31% decline in 1HFY01. The company's diluted EPS (annualised) on that basis shrinks from Rs 24.0 to Rs 16.7.

At the current price of Rs 173, the stock trades at a PER of 10.4 times its annualised FY01 earnings. We had projected an 8% growth in turnover and a 4% decline in its bottomline. The results are thus, below our expectations and deserve a relook.

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