Tata Global Beverages' profits may have more than tripled but rising commodity prices and competition will continue to challenge the tea major.
Percy Siganporia, Managing Director, Tata Global Beverages, would do well to take a strong swig of the tea his company brews to brace himself for some turbulent times ahead for the company. After a dip in net profits last quarter, Tata Global recovered with a more than three-fold increase in profits in the first quarter of this fiscal. However, the tough times will continue for the tea major as tea prices increase in most markets along with competition in both the international and domestic markets.
While net sales for the quarter increased by 6 per cent from Rs 1,373.89 crore to Rs 1,455.92 crore, the increase in net profit for the June quarter was backed by an infusion of Rs 88 crore of exceptional items along with lower interest costs whereby consolidated net profit jumped from Rs 45 crore to Rs 161 crore. As Siganporia explains, “While there has been volume growth during the quarter, the increase in profits has been due primarily to the increase in exceptional items.” Exceptional items comprise the sale of non-core assets in terms of shareholding in group company Tata Chemicals.
Maintaining volume leadership in the tea category for the world's second largest tea company with an 18.6 per cent share, Tata Global continued to take slight price increases during the quarter for its brands such as Tata Tea Premium Gold brand.
However, commodity costs have continued to be high and this has affected its margins. “Tea prices at the auctions have been dearer by nearly Rs 10 per kilo and it is only early this month that we found prices dipping,” says Siganporia. However, there is likely to be to no immediate respite from the increasing coffee prices and recovery from commodity costs may take a while, he adds.
RISING INPUT COSTS
Sagarika Mukherjee, research analyst at SBI Cap Securities, says the rising prices of tea and coffee will impact the company. “Profitability is likely to decline from these levels as tea and coffee prices are both going to rise again after a short span of easing in the month of June. Coffee production from Brazil (main source of coffee for Tata's Eight O'Clock) will see an ‘off-year' due to which the prices will remain firm this year. Coffee prices have risen from $1.5/pound to $3/pound in one year and are likely to settle around $2.7/pound, hence there will be continued raw material pressure for Eight O' Clock Coffee,'' she elaborates.
Besides, Kenya (the world's largest exporter of tea) will see a production loss of 50 million kg of tea this year due to which tea prices will remain high. Indian tea, especially from North Indian tea gardens, will continue seeing higher prices (above Rs 150/kg from Rs 136/kg last year) due to shortfall in production worldwide. Inventory levels are low for both coffee and tea worldwide which will exacerbate the situation.
MIXED PERFORMANCE
The company's performance in the international markets continues to be mixed. It has integrated its global business in three regions (Canada, South Asia and Great Britain) to strengthen the distribution channel, streamline costs and improve margins.
While in Canada it continues to have market leadership in the black and speciality tea segment, in the US lower volumes and commodity costs have led to its trailing behind its competitors. Its UK performance has also been affected due to phased promotions and competitive intensity while in Russia its coffee performance has been good, according to the company.
LESS OF TEA, LOCALLY
Even in the domestic markets competitive intensity is increasing and this is leading the company to explore new categories which do not use tea as an ingredient.
According to Parag Desai, Director, Gujarat Tea Processors & Packers Ltd, which makes Wagh Bakri, “Tata Tea has become a global company now and it is trying to move away from tea into more value-added beverages.''
In fact, in the past quarter when its profits had dipped, the company claimed it was planning to move away from the pure tea category. It has been looking at value-added products such as infusions and powders which use less of tea as a commodity and reduce its dependence on commodity-dependent formats in the tea segment.
“We want higher margins per serving of tea and believe that categories like infusions are going to give us those better margins. We want people to get addicted to categories such as infusions and powders but execution of such value-added categories has to be different,'' explains Siganporia.
Even in the UK market, the company has taken a strong position in speciality categories such as decaf and red bush in spite of having a presence in the black tea segment (which is de-growing).
Considering that the competitive intensity has increased in the UK, Tata Global has decided to focus on the antioxidants-led non-caffeine-based Red Bush category of teas. “While we trail behind in black tea, we have taken significant positions in the red bush and decaf category and intend to promote it,” says Siganporia.
However, the challenges will remain for the tea company. According to analysts, the main challenge will be to maintain margins in a high commodity inflation environment. Besides, Eight O'Clock Coffee has been de-growing since 2008 due to the slowdown in the US and hence passing on the costs to the end user without their downtrading will be a big challenge.
However, there are going to be positive factors affecting the business as well. As Mukherjee of SBI Caps says, “One positive is that the company has reduced its interest expenses significantly; hence that lower cost pushes up the profit after tax. Besides, the underlying 2 per cent volume growth with respect to the 6 per cent increase in net sales is decent given that the company grew by 13 per cent, most of which was volume-driven.''
Siganporia is also looking forward to better times considering the 12 per cent top line growth in the branded business in the domestic market driven by both volume and value (due to the price increases in the last two quarters of last fiscal). In the international markets too, he expects the coffee business to get on track with improved coffee performance in Russia. In the non-branded operations, Siganporia expects improved performance and realisations from the instant coffee units and coffee plantations in India aided by the commodity boom.
In spite of the tough times, Tata Global is bracing itself for the future. “Despite rising commodity costs, intense competitive activity and a challenging trading environment, we will continue to invest in our brands and focus on category development. Strong organic growth together with strategic alliances will help us achieve our vision of being a leader in ‘good for you' beverages,'' signs off Siganporia.
Source: Business Line
Tata Tea has announced that it has been renamed as Tata Global Beverages Ltd, effective today, in keeping with its earlier-stated plans to diversify its product portfolio. The company said, the move “demonstrates our intent to build a new and strong global brand”.
Tata Global Beverages will consolidate all of the Tata Group’s various drinks units, retaining the existing brand names for now. The company has been looking to distinguish itself as more than just a tea company, and has been moving into the bottled water and fruit juices business.
The possible downfall in exports in the tea industry might not have adverse impact on the Indian tea industry, as the domestic demand is strong enough to drive past the recessionary period.
A fall in the exports to Russia had raised the concerns of the tea traders across the country, as the buyers in Russia are delaying their purchase decisions due to credit crunch.
According to Tea Board estimates, there could be some deferments in the short term. However, experts see an increase in the consumption of Indian CTC teas as the recession-hit consumers would switch over to consuming tea from other costlier beverages. A general perception says that people consume more tea staying at home. But some costlier varieties like the Darjeeling tea would have an adverse impact.
According to available figures, tea exports for the CY 2008 stood at 196 million kgs an increase of 10% from 178 kgs in 2007. But for the fiscal year-ending March 2009, the exports could fall short of targeted 210 million kgs.
Lack of timely rains too seemed to have impacted the Indian tea output in the January-March quarter. Country’s key growing areas including Assam had witnessed a dry spell of six months from September to February during this year.
Tea stocks on the bourses traded positive today as one of the country’s largest tea makers, Tata Tea Ltd was trading at Rs.552 up by close to 1.5%, while CCL Products India Ltd traded at Rs.63.25 up by 1.5% on the BSE. Tea exporter and trader, Bombay Burmah Trading Company Ltd was treading high at Rs. 129 up by 7.5% during the afternoon trading hours on the BSE today.
KOLKATA: Tata Tea Ltd is in the process of restructuring its US operations with a view to bringing down costs substantially, a top official of the company official said on Monday.
The company is consolidating its manufacturing facilities, which would be run under a unified entity, Tata Tea Managing Director Percy Siganporia told reporters here. Tata Tea markets brands like Tetley, Goodearth and 8'o Clock Coffee in the US market.
He said that the company's strategy towards the US market is that of cost management. Tata Tea is following different strategies in the various markets of the US, Britain, Canada and India, he added.
In Canada, the strategy followed by Tata Tea is that of product innovation. In standalone operation in India, he said that the company had been able to protect the bottom line while the towline growth was followed aggressively.
India contributed to nearly 26 per cent of Tata Tea's overall revenue. He said a top executive team of Tata Tea has been relocated to the UK. "The chemistry works better when the top executive team stays at the same location.'' Siganporia would relocat e himself from Kolkata to the UK.
From PTI
Tata Tea Q3 Group Net Profit Drops, Absent Of Year-Ago Gain
Posted by darj at 9:59 AM Labels: tata teaFriday, Tata Tea Ltd., the largest tea manufacturing company in India, reported a lower consolidated net profit for the third-quarter in the absence of a year-ago gain from the stock sale. However, on standalone basis, the company reported higher net profit for the quarter.
Consolidated Results
The Kolkata-based company posted third-quarter consolidated net profit of Rs.396.12 crore or Rs.64.06 per share, 69% lower than Rs.1,292.22 crore or Rs.208.96 per share in the third-quarter of 2007, which included a one-time gain of Rs.1,604.74 crore on sale of its stake in Energy Brands Inc.
The company said the previous period's figures have been rearranged to the extent necessary, to conform to the current period's figures. Therefore, the comparative figures have been restated to exclude North India Plantation Division and certain related adjustments effected to make them comparable with the current quarter.
The company said its recent quarter results included a one-time foreign exchange gain of Rs.580.41 crore on restatement of foreign currency deposits/loans, compared with Rs.38.25 crore in the prior-year quarter.
The company's quarterly consolidated revenue from operations increased 15% to Rs.1,300.86 crore from Rs.1,135.56 crore in the year-ago quarter, while other operating income totaled to Rs.5.93 crore, compared with Rs.8.07 crore in the prior year quarter.
During the quarter, revenue from Tea segment rose 12% to Rs.1,013.01 crore from Rs.902.20 core in the corresponding quarter last year, while revenue from Coffee & Other Produce amounted to Rs.285.59 crore, up 20% from Rs.238.94 crore in the year-ago quarter. Revenue from others were Rs.8.19 crore, compared with Rs.2.49 crores in the previous year quarter.
For the first nine months, Tata Tea's consolidated net profit fell 51% to Rs.689.57 crore from Rs.1,417.46 crore in the corresponding period last year. Total revenue grew 13% to Rs.3,647.99 crore from Rs.3,215.51 crore for the comparable period a year-ago.
Standalone Results
The company's third-quarter standalone net profit grew 10% to Rs.48.30 crore from Rs.43.78 crore in the third-quarter of 2007. Total revenue, including other operating income, increased 22% to Rs.382.75 crore from Rs.314.08 crore in the year-ago quarter.
For the Apr-Dec 2008 period, Tata Tea's standalone net profit rose 6% to Rs.129.80 crore from Rs.121.91 crore for the comparable period last year. Total revenue grew 16% to Rs.1,022.04 crore from Rs.878.41 crore for the comparable period a year-ago.
The company said its board has decided to relocate Managing Director, P.T. Singanporia to London, However, he will continue to be the company's Managing Director and will also be responsible for global manufacturing operations as well as buying and blending, supply chain and related activities for some regions.
At the BSE, Tata Tea closed Friday's trading at Rs.607.10, down by Rs.15.95 or 2.56% on a volume of around 49K shares.
Tata Tea locks out Dam Dim Tea Estate
Posted by darj at 8:42 AM Labels: closed tea estate, dam dim tea estate, tata teaTata Tea confirmed its decision to declare a lockout in Dam Dim Tea Estate through a press release today even as trade unions expressed eagerness to end the deadlock.
The company said the management of the garden located in Malbazar, 45km from here, was compelled to shut the estate after the manager, three assistant managers and two welfare officers were “kept under illegal confinement” for 17 hours. The statement also said 46,000kg of plucked leaf was “completely damaged” as the workers had refused to unload them at the factory.
The workers, however, have denied the charges. Once a model garden in the Dooars, the fate of its 2,200 odd workers is now uncertain.
Officials of the Dooars branch of Indian Tea Association (DBITA), of which Dam Dim is a member garden, confirmed that both the Citu and Intuc have approached them to initiate dialogue that would end the deadlock. “There have been some correspondences from their side. We will look into them,” a DBITA official said.
Mani Darnal, joint general secretary of the Intuc-affiliated NUPW in Jalpaiguri, admitted that unlike other gardens, Tata estates like Dam Dim did not have any financial problems like irregular wages or pending provident funds. “It is a minor issue that could have been solved through bipartite meetings. We have asked the management’s representatives to fix a meeting and inform us,” said Darnal.
Trade union leaders had yesterday said they were not happy with the style of functioning of the new manager of the garden, Uday Bhanu Das. Apparently Das had switched the weekly holiday from Sunday to Monday. “Not only that, plantation workers were brought to the factory and factory workers sent to pluck tealeaves. If any worker protested, he was not assigned a job for 10 days at a stretch,” a CPM leader had said yesterday.
Officials at the district labour department said they would intervene only if the bipartite meeting fails.
Source: The Telegraph
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