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Equity Research Report On Tata Tea Limited

For Institutional Clients

Analyst:

ANKIT KHAITAN
akhaitan@hemonline.com

DIVIDEND ANALYSIS For Private Circulation Only 1 Hem Institutional Research Desk .00 Upside: 142. Tata Tea Limited is a market leader in tea segment.hemonline. Tata Tea will hold 33.50 the stock is trading at a PE of 5.2x and 11. The production for this quarter is expected to be less by around 12.84 BSE Code: 500800 TATA TEA BUSINESS DESCRIPTION TATA TEA LIMITED IS A GROUP COMPANY OF TATA GROUP.00 Face Value Per Share: 10. in partnership with European Bank of Reconstruction and Development (EBRD).20% -30. through one of its overseas subsidiaries. CAGR 8. ONE OF THE LARGEST AND MOST RESPECTED BUSINESS HOUSES OF INDIA. We are very positive on the long term business prospects of the company and financial performance.00 with a medium term investment horizon.000 tonnes. This could result in the rise of the price of tea and a significant rise in top line.60 Book Value Per Share: 309. has led to a dramatic fall in production during the first quarter of this year.93% 91.18 th 17 April 2009 th BUY Industry: FMCG NSE Code: TATATEA Target Price: 820.60 and with non adjusted trailing EPS of INR 129.18% 12m -23.18 Crore Price as of 17 April: 677.2 per cent stake and EBRD will hold 17. COFFEE. EPS ANALYSIS Highlights/Recent Updates Tata Tea to acquire 51 per cent stake in Russian firm Grand Tata Tea has announced to acquire 51 per cent stake in Grand.www. CHAI OUTLET AND RECENTLY LAUNCHED PRODUCT IN NONCARBONATED DRINKS. At Current Market Price of INR 677. THE COMPANY IS ENGAGED IN PRODUCTION OF TEA. We can see a rise in price of tea as a result of the falling production.000-15.00 Beta: 0. Post acquisition.47% 12.com BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY Tata Tea Limited Market Cap: 4190. a major tea growing region. STOCK PERFORMANCE TATA TEA SENSEX 1m 26.605% 115.09% 247.27 Crore Outstanding Shares: 6. as drought hit in North-East India Drought in North-East India.42% Recommendation Drought in tea producing region has resulted into low production of tea for this quarter. a Russia's tea and coffee major. We reiterate “BUY” on the stock with target price of INR 820. 3 Yr.8 per cent.14% GROWTH (%) REVENUE PROFIT Last Qtr.00 / 430. MINERAL WATER. TEA BUSINESS CONTRIBUTES MORE AROUND 80 PER CENT OF THE TOTAL REVENUE TO THE COMPANY.78 and adjusted trailing EPS of INR 61. Tea production drops.385% 8.00 52 Week Range: 961.0x respectively. Last Yr.67% 26.

The total market of carbonated drinks is expected at around INR 10. Indian beverage segment has made it presence felt across the globe. Non-carbonated drinks Non. Under white beverage which are consider as health drink. But recently there is a decrease in production of tea from major tea producing country which could result in increase in price of tea. flavored lime.000 crore. texture. India has the largest irrigated land in the world. Viva. During summer. People are becoming health conscious. nectar and juices.000 crore.hemonline. The juice market contribute around 30 per cent where as nectar just contribute a little amount of around 8-10 per cent of the total noncarbonated drink. For Private Circulation Only 2 Hem Institutional Research Desk . Coffee also contributes a significant part in hot beverage market. Hot beverages Hot beverages include white beverages and brown beverages. Other Mineral water is packaged water which is sold across shops. Indian tea plantations employ nearly three million people. Market for mineral water is expected around INR 250 crore. Assam and neighboring states account for more than 70 per cent of total tea production in India. We have seen a shift from carbonated drinks to non-carbonated drinks as customers are becoming more health conscious. The product of carbonated drinks includes cola.63 per cent in September quarter has fell to 0. tea and pulses. The total market share for white beverage is expected around INR 3. flavored orange.18 per cent for the week th ended 4 April 2009. Soda improves the taste.www.carbonated drinks are beverages composed of fruit drinks. Beverage Industry The beverages market primarily consists of non-alcoholic beverages which can be broadly classified into carbonated drinks. The noncarbonated drinks market is expected to register a growth rate in between 30 to 40 per cent per annum.com INDUSTRY SNAPSHOT India is one of the fastest growing economies in the world.000 crore. or both of the beverages. the major brand are Horlicks. India tea production is more than a million tones per year. noncarbonated drinks and hot beverages.000 crore. While we are moving towards becoming a services-led economy but still agriculture contributes around 17 per cent of the total GDP and employs 60 per cent of the population. In INR 500 crore noncarbonated beverage fruit drinks contribute around 50-60 per cent of the total non-carbonated drinks market. which is leading to the demand of mineral water. The wholesale price index (WPI) after hitting a high of 12. Carbonated Drinks Carbonated drinks are beverages which contain carbon dioxide (soda). Tea contributes a major part in hot beverage industry and is expected at around INR 8. Non-carbonated drink is consider as hygienic and healthy drink as appose with carbonated drinks. etc. More than half of brown beverage is available in unpacked or loose form. Boost. etc. Brown beverages mainly constitute tea and coffee. India tea industry is expected at around 10. India is a largest producer and exporter of tea in the world. Maltova. It is also world’s largest producer of milk. the demand is at the peak.

The company has a 100% export-oriented unit (KOSHER & HACCP certified) manufacturing Instant Tea in Munnar. After the acquisition of Tetley Group. Tata black tea extracts has also capture significant market. Iced Tea Mixes and in the preparation of Ready-to. Jemca in Czech. the combined entity represents the second largest global branded tea operation with product presence in more than 40 countries. a Russia's tea and coffee major. Packet tea market contributes a little more than a one. one of the largest and most respected business houses of India. a joint venture company formed in 1964. The company has five major brands in the Indian market . The agreement involves setting up a joint venture Company at Economic Development Zone of Anji County. which is the largest such facility outside the United States. developed in-house. giving it a distinctive liquoring and taste profile. liquid tea concentrates and other value added tea beverage products. Recently the company has announced to acquire 51 per cent stake in Grand. cold and hot water soluble instant tea. Instant Tea is used for light density 100% Teas. Eight O’ Clock Coffee in US and trademarks of Vitax and Flosana in Poland. The company has a unique manufacturing process using fresh green tea leaves gives an exotic taste to their tea extract products and has found wide acceptability in western markets. Tata Tea Limited is a group company of Tata Group. The company brand is accorded "Super Brand" recognition in the country. in the year 2000. and Kerala in the south. Coffee and others. Tea companies recorded robust sales on account of rising tea prices and high export demand. Chakra Gold and Gemini to cater to all major consumer segments for tea. which is the largest tea producer and consumer in the world.Tata Tea. The company manufactures Black Tea extract in their factory situated in South India which is exclusively for the export markets. The acquisition of management control of Mount Everest Mineral Water Company is in line with the company growth plans in many forms in India and the global market place.7 million retail outlets in India. Kerala.com COMPANY OVERVIEW India. Tetley. Tata Tea will hold 33. Exports rose by 10 per cent to about 196 million kg in 2008 from about 179 million kg in the previous year.www. Tata Tea leads market share in terms of value and volume in India. The Company owns 27 tea estates in the states of Assam and West Bengal in eastern India. PRC for manufacture and marketing of Green Tea Polyphenols. The company has a distribution network with 38 C&F agents and 2500 stockists to cater over 1. Zhejiang.third of the total tea market. recorded a 4 per cent growth in tea production in 2008 at 981 million tonnes as compared to about 945 million kg the previous year. Kanan Devan. For Private Circulation Only 3 Hem Institutional Research Desk . other green tea extracts. Tata Tea was formed in 1983 from the erstwhile Tata Finlay Company. The consolidated worldwide branded tea business of the Tata Tea Group contributes to around 86 per cent of its consolidated turnover with the remaining 14 per cent coming from Bulk Tea.drink (RTD) beverages.2 per cent stake.hemonline. Even the company has signed a Joint Venture Agreement with Zhejiang Tea Import & Export (ZTIE) Company of People's Republic of China. Tata Tea Limited is involved in the tea extract business for last 40 odd years. the company has been continuously paying dividends to its shareholders along with continuous growth. The unit's product is made from a unique process. Over past five years. The company has an agenda of globalization which has resulted in acquisitions of Good Earth in US. Post acquisition. of extraction from tea leaves.

Other Mineral water is packaged water which is sold across shops. Hot beverages The company is market leader for tea in terms of value and volume in India. The company offer brands in the Indian market to cater all consumer segments for tea. and Kerala in the south.www. The non-carbonated drinks market is expected to register a growth rate in between 30 to 40 per cent per annum. Mineral water. The company offer tea in packet as well as in loose or bulk form. The company expects to receive a good response from the market.Tata Tea. For Private Circulation Only 4 Hem Institutional Research Desk . Kanan Devan. The company owns 27 tea estates in the states of Assam and West Bengal in eastern India. Tata coffee contributes little more than 21 per cent of the total revenue to the company. Market for mineral water is expected around INR 250 crore. a tea and fruit-based cold beverage. More than half of tea and coffee are available in unpacked or loose form. The company has recently launch T!ON. The company has five major brands . Tetley. During summer. The company offer: Tea Coffee Mineral water Chai Outlet Non-carbonated drinks The product offered by the company fall under Beverage segment. People are becoming health conscious. Chai Unchai outlets The company has launched Chai Unchai outlet in a moveable format. The company has registered 57 per cent growth in sales volumes over the last 5 years Non-carbonated drinks The company has recently forayed into non-carbonated drinks business. Mineral Water The company produces and supplies mineral water under the brand Himalayan.com BUSINESS SEGMENT The product offered by the company fall under Beverage segment. Tata Tea sells 90 per cent of its teas in the packet form & 10 per cent in loose or bulk form in India. The company has received good response for the market.hemonline. The Brands Tata Tea and Agni are the market leaders in their segment. Now the company is set to expand Chai Unchai outlets this time in a tea parlour format. Chai Outlet and recently launched product in Non-carbonated drinks. This is the first of cold package tea and fruit based beverage and could get appreciation from customer. which is leading to the demand of mineral water. The company offer Tea. The company expects to see an increase in demand for mineral water. Tea contributes major revenue to the company. Coffee. Chakra Gold and Gemini. the demand is at the peak.

Weakness Concentration risk over single category The company has high reliance on a single category tea which accounts for more than 85 per cent of the company revenue and profit. Wide market coverage The company has a wide distribution network with 38 C&F agents and 2500 stockists to cater over 1. But recently the company steps into non-carbonated drinks and other product has diversified the risk of the company. 90 per cent of tea revenue comes through packet which is among the highest.www.com SWOT ANALYSIS Strength Market Leader in tea segment Tata Tea Limited is a market leader in tea segment. Threats Competition from regional and local player Loose or bulk tea command a major share in India. Market Leader in tea segment . Backward Integration Tata tea owns 27 tea estates in the states of Assam and West Bengal in eastern India. The company has an existence of more than 40 years. Opportunity Growth potential in Fruits and Herbals tea Fruits and Herbals tea are in the market from a small time.hemonline. Hence there are lots of untapped potential in rural market. The low price of loose product and heterogeneous taste of tea has a negative impact on the revenue for the company. packing and distribution firm.Tata Tea Limited is a market leader in tea segment Backward Integration . These products could result into growth in revenue. which is a biggest consumer of tea in the world. The products are at a nascent stage in India. Low Penetration Level Loose or bulk tea has high penetration in urban area.Owns 27 tea estates which provide as a cushion to the company Wide market coverage Concentration risk over single category.7 million retail outlets in India. Global Existence The company has announced to acquire 33.Tea accounts for more than 85 per cent of the company revenue Growth potential in Fruits and Herbals tea At a nascent stage Global Existence .Acquisition to penetrate into Russia market Low Penetration Level Competition from regional and local player For Private Circulation Only 5 Hem Institutional Research Desk . The acquisition will help the company to penetrate into Russia market.2 per cent stake in Grand a Russian branding. and Kerala in the south. Tea field provide as a cushion to the company against the price rise of raw material.

which was mainly on account of Exchange gain.46 crore for the last year to register a growth of more than 247 per cent.89 crore.41 crore for the year ended March 31. The company has reported a significant growth in PBT and PAT.www. Recently due to low production. The company has registered high growth in the PBT and PAT margin in the last year. We could see a growth in top line as well as in bottom line in the future. For Private Circulation Only 6 Hem Institutional Research Desk .hemonline. 2008 as compared to INR 77. which is the major reason for the rise in PBT and PAT. There is a continuous growth in top line as well as in bottom line. Due to high income. from interest on loans for acquisitions. The company has performing well over the past year. The company has registered continues growth in top line. The Company has posted a net profit of INR 250. which was mainly on account of net interest income and Interest on loans for acquisitions.exchange gain. Annual Result The company has registered a robust growth rate over the past few years. The PBT for the company has increased over PBITDA.69 crore which was registered a growth of more than 8 per cent over the last year which stands at INR 4024. The company has recently reported total income of INR 4365. the PBT and PAT are not comparable. The company under tea segment has the largest market share in volumes. Quarterly Result The Company has registered a marginal growth in PBITDA as compare to last quarter. The company has reported extraordinary items .com FINANCIALS A growth rate in revenue stands at ~8 per cent where as for profit it stands at ~247 per cent. we expect the price to go up.

32 per cent has been pledge by one of the promoter of the company. Graphical presentation of Share Holding Pattern Tata Sons.32 per cent of the total outstanding share of the company. Total promoter holding stands at around 35 per cent of the total outstanding share of the company. Total promoter holding stands at 35.32 per th cent of total share has been pledge on 11 Feb 2009. The pledging had fetched the promoters over INR 389 crore.32 per cent. a promoter has pledge the share at the market price. For Private Circulation Only 7 Hem Institutional Research Desk .hemonline. 11.www.com SHARE HOLDING Holding Pattern for the last 4 Years Tata Tea Limited has informed that 11. Out of 35.

0x respectively.ROAD AHEAD Robust Growth rate Market Leader in tea The company is able to generate continuous growth in Cash Flow from Operation.78 and adjusted trailing EPS of INR 61. We are very positive on the long term business prospects of the company and financial performance.60 and with non adjusted trailing EPS of INR 129.2x and 11.com KEY TAKEAWAYS FOR THE INVESTOR . fruit-based beverages and mineral water) augur well for the company to sustain the growth at a consolidated level. Growth potential in Fruits and Herbals tea Margin and revenue likely to increase in the future OUTLOOK Drought in tea producing region has resulted into low production of tea for this quarter.00 with a medium term investment horizon.50 the stock is trading at a PE of 5.hemonline. We believe Tata Tea’s focus on new geographies and new initiatives (such as green and herbal tea. At Current Market Price of INR 677. This could result in the rise of the price of tea and a significant rise in top line. For Private Circulation Only 8 Hem Institutional Research Desk . We reiterate “BUY” on the stock with target price of INR 820. Tata Tea is World renowned and has the highest sales of tea in volume term.www. Tata Tea Limited is a market leader in tea segment.

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