Tata Tea net jumps 3-fold on forex gain

Tata Tea, the world’s second largest branded tea company, said its profit more than tripled because of a one-time gain from forex fluctuation arising out of an overseas deposit made from the sale of a 25 per cent stake in Glaceau.

The profit of the company rose to Rs 229 crore in the three months ended September 30, from Rs 68 crore for the corresponding period last year. The company earned $1 billion last year from selling its stake in Glaceau to Coca-Cola.

The company had earlier said that the money from the sale of Glaceau would be used for retiring debt for the deal ($427 million), other debt on its books and acquisition of beverage companies in the US. "Determining net profit without these gains is difficult and would be inaccurate as we have reported consolidated gains from all our international businesses," said R K Krishna Kumar, vice-chairman, Tata Tea. Signalling troubled times, Tata Tea said its operating profit dropped to Rs 127 crore from Rs 144 crore.

 

"Our profits have been impacted by hardening of the commodity prices, inflationary increase in input cost and higher level of advertisement expenditure during the quarter," said Percy T Siganporia, managing director, Tata Tea. The company recorded an 18 per cent increase in advertising and branding expenses at Rs 247 crore, up from Rs 210 crore for the corresponding period in the last year.

"We have spent an additional Rs 40 crore on top of our usual advertising budget for launching new brands and increasing market penetration in the US," said Siganporia. Major expenses during the quarter included the launch of the Himalya brand at Rs 14-15 crore in India, the launch of its South African red tea Rooibos in Canada, the expansion of its Good Earth organic brand across major retail stores in the US and the 'Jaago re' tea campaign in India.

The drop in operating profit was despite price increases by the company in the quarter. "During the year, we had increased prices by 5-8 per cent for tea and coffee in the UK. Other markets are now in the process of increasing the prices across all categories of our teas and coffee products, including India as well," said Siganporia.

"The full impact of the value growth due to the price increase in the Indian markets would be reflected in the third quarter of the current financial year as the price revisions are still going on in India," he added.

Revenues of the company rose 14 per cent from Rs 1,055 crore to Rs 1,200 crore for the current quarter. International revenue accounted for 73 per cent of its total revenues.