The fast moving consumer goods space may be grappling with a consumption slowdown, but Tata Global Beverages’ tea brands in the domestic market have come to its rescue: maintaining volume growth even as profitability has increased. Combined with cost rationalisation across international and domestic businesses and declining commodity prices, the company has managed to reduce pressure on profit margins substantially.
According to the company, while one-time expenses arising from deferred tax assets brought its net profit down by 17 per cent year-on-year during the second quarter, excluding these one-time charges, group consolidated net profit is up 45 per cent. TGBL’s stock prices have consequently risen 13 per cent over the past month.
“TGBL’s consolidated revenue and EBITDA grew 4 per cent and 41 per cent respectively… Revenue was in line with our expectations but EBITDA performance was significantly ahead,” said JMFL analysts Richard Liu, Vicky Punjabi and Nikita Maheshwari, “(This) is a function of a sharper comeback of the core domestic tea business. Volumes were resilient and strong at 8 per cent… A key positive was the ability to maintain volume growth trajectory on sequential comparison, despite a worsening macro picture”.
Ajoy Kumar Misra, managing director and CEO, TGBL, noted that the firm’s flagship tea brands have done well. “Tata Tea Premium and Tata Tea Gold, our flagship brands, grew by high single digits. Tata Tea Agni grew by double digits and Tata Tea Spice Mix continues to deliver robust growth numbers. We have now also incorporated our acquisition of Lal Ghoda and Kala Ghoda brands, which came into the fold from August 21,” Misra told analysts at an earnings call last week.
The period has also seen the firm float a few new products, including a pilot rollout of a 3-in-1 Quick Chai product.
“We have floated it on a pilot basis in Mumbai… We will begin serving other markets soon,” added L Krishna Kumar, Group CFO.
While lower commodity prices have played a role in widening its margins, Misra also noted that a large part of increasing profitability was due to cost rationalisation. “Both in the coffee business and the tea business, that margins have expanded largely because of cost measures,” Misra said.