• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Alagappan Arunachalam

INVESTORS can consider an investment in the stock of Tata Tea, which quotes at about 12 times the expected consolidated per share earnings for FY05. This is at a significant discount to most other FMCG companies.

With the divestment of its plantations business, Tata Tea has made a significant move towards transforming into a FMCG company with a global presence.

Despite almost negligible growth in sales, the consolidated earnings in the third quarter have grown by 37 per cent backed by lower interest outgo and production expenditure. The good performance is likely to continue. Debt restructuring at Tata Tea (GB) is expected to significantly expand its consolidated earnings. The domestic tea business may also benefit from the firm trends in domestic prices, on account of higher exports and lower production.

Exiting its plantations business in South India should cut down on its employee costs, which are damper on its domestic margins. This, however, is not expected to compromise on the quality or quantity of tea sourced, as Tata Tea has taken a minority stake. The proposed sale of its freehold plantations in South India is expected to bring in substantial cash, which is likely to be used in exploring new markets.

The lower debt equity ratio at Tata Tea (GB) would enable it raise further funds for its planned business acquisitions to establish a footprint in new markets.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Investment quiz

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line