Tata Tea Net Seen At Rs 60 Cr

Analysts expect an improvement in the performance of Tata Tea, one of the world's largest integrated tea company which will be announcing its results for 1996-97 today.

Pankti Bansali, analyst with P R Subramanyam and Sons, expect the net profit to be at Rs 59.5 crore, while Nikhil Vora analyst with Ceat financial also projects net profit between Rs 60-62 crore.

Some analysts feel the figure would be much less on account of fall in the other income and less then expected rise in the tea prices. The fall according to them may be 5 per cent compared to the previous year's figure of Rs 46 crore.

 

The performance is the continuation of the poor run the company had during the last three years (see table). Non-operating income has traditionally formed a high component of Tata Tea profits (nearly 40 per cent).

According to Vora of Ceat, the reason for the poor show was the stagnant tea prices. He further adds, that the price hike has not even kept pace with the inflation growth. The reason for lower prices says Bansali was the low domestic consumption and export which created surplus leading to price fall.

Tata Tea is a major player in the packed tea segment and has a market share of around 20 per cent.

Over the years, a strategic shift towards packet tea and polypacks has seen its contribution to turnover rise in the region of 80 per cent of the total tea sold.

Further, it sells its packed tea through retail net work which comprises of 5,000 distributors and over 2,000 selling agents. Vora feels, the margins are high in packed tea segment.

Its major brands in tea are Tata Tea, Kanan Dewan, Brahmaputra, Leo etc. Kanan Dewan, a polypack enjoys a positioning of being garden fresh tea and a good brand equity. By concentrating mainly on packed tea, it is insulated from the daily fluctuation in the prices of tea.

Further says Nikhil, the company is a seller in the auction market so it is able to take advantage of high tea prices which will be clearly reflected in the current year first half performance. As the company just trade in coffee, the benefits will not be substantial feels Nikhil.

The analyst feels the scrip is over priced at the current rate but given the strong fundamentals and high tea prices the scrip will attract buying interest at the lower levels.