Cheers At Last At Tata Tea

This improvement has come despite a fall in other income from Rs 19.4 crore to Rs 18 crore. This is one of the positive developments as the quality of earnings has been a major concern for the company.

According to Pankti Bansali, analyst with PR Subramanyam & Sons, whose projections were the closest with actual results, feels the rise in the prices of tea and coffee were the main reasons for the improved performance. Tea prices have firmed up due to a shortfall in the production in Sri Lanka and in Kenya.

Secondly, the companys predominant focus on the packaged tea segments has helped. Despite vagaries in the bulk tea market, prices in the packaged tea segment are stable and the margins are high.

 

Thirdly, since it produces more tea than it consumes, Tata Tea was a net seller in the tea auction market. Thus, it has been able to ride the rising price trend whereas other companies took a hit.

Fourthly, strong export performance has been one of the prime driving forces behind the companys good results.

Export turnover has increased by 106 per cent to Rs 216 crore in 1996-97. Exports of the companys mainline products recorded an increase of 82 per cent while exports of coffee ( which is basically a trading activity) increased by 116 per cent.

Prospects for the current year are equally good. Prices are expected to remain firm, says Pankti, as Russians, the Europeans, and, more recently, Iran, Iraq and Pakistan are looking towards the Indian market.

The company has undertaken a major modernisation programme costing Rs 160 crore spread over the next four years. The good news is that it will be funded entirely through ECBs and internal accruals. The purpose of modernisation is to improve the yield of the existing crop. This works out cheaper than increasing the area under cultivation.

Growth in the current year will come from high sales realisation, high export income, improved crop yield and new tea plants which the company has acquired in recent times in countries like Sri Lanka, Kenya, Zambia, South Africa etc.

The company may not benefit from the sharp jump in coffee prices in recent times as its interests are only in trading. However, its subsidiaries, Asian Coffee and Consolidated Coffee should report better results. Tata Tea should therefore benefit from the higher dividend payout.

The strong prospective earnings growth has already been discounted by the markets. The share price has moved up in the last one month from Rs 211 to Rs 320.