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C. Raja Rajeshwari

FRESH investments can be contemplated in Tata Tea at price declines of about 15 per cent from the current levels. Existing shareholders can remain invested. The company is likely to maintain its earnings growth in the coming quarters with Tetley's performance turnaround, increase in its market share, continued marketing initiatives and product extension developments.

However, the stock price discounts the trailing 12 months per share earnings of Rs 13.08 by around 18 times, making the valuations rich.

Better performance: For 2002-03, the consolidated topline grew 9 per cent to Rs 3,292 crore and bottomline 12 per cent to Rs 117 crore. The company derives a major chunk of its revenues from the branded tea segment. Not only is the market hotting up with its competitor HLL stepping up its marketing initiatives, but also by the presence of the unorganised sector with its cheap quality loose tea. On the positive side, Tata Tea gained one per cent market share to 19.4 per cent in FY 2002-03.

The falling volumes have been arrested and volumes stabilised for Agni, Chakra Gold and Kanan Devan. The company's increase in ad spend for this year, tie-up with Sony Music to promote Tetley and select southern retailers to promote its national brands should bring in the needed volumes.

Tea prices continue to remain weak and are expected to bottom out and remain more or less stable in the near future.

Medium-term outlook: Tata Tea has a product mix that ranges from the premium to the economy segment. Tata Tea plans to offer flavoured and herbal tea and enter the ready-to-drink segment under the Tetley Brand.

This is a niche market and Tata Tea's success would depend on the product and the price.

The company plans to promote Tetley in faster-growing markets such as West Asia and CIS. Tata Tea is focussing on the US market, where the margins are better. During the last one year, Tetley improved its market share in its key markets — the UK, Canada and Australia.

It may take time for these initiatives to reflect on the bottomline. In any case, Tata Tea, with its exposure to branded tea, is in a better position vis-à-vis its peers in the industry. Hence, shareholders can contemplate fresh exposures on declines.

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