• NOVEMBER 1, 2000

Tata Tea: Poor blend in 1HFY01

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)2QFY002QFY01Change1HFY001HFY01Change
Other Income13263-52.3%133368176.4%
Operating Profit (EBDIT)595593-0.4%1,078834-22.7%
Operating Profit Margin (%)25.7%26.1% 24.2%19.8% 
Interest (Net) 335053.1%8310931.0%
Profit before Tax646557-13.8%1,033994-3.8%
Profit after Tax/(Loss)462361-22.0%7237473.3%
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)2QFY002QFY01Change1HFY001HFY01Change
Profit before Tax514494-3.9%900625-30.6%
Profit after Tax386371-3.9%675469-30.5%
Net profit margin (%)59.7%66.5% 15.2%11.2% 
No. of Shares (eoy) (m)48.656.2 48.656.2 
Diluted no. of shares56.256.2 56.256.2 
Earnings per share*   24.016.7 
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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