Tata Tea profit tepid as input prices pinch

MUMBAI: Tata Tea reported a 75% rise in its consolidated net profit for the first quarter ended June 30, 2008, at Rs 85.39 crore over the same period last fiscal, saying that profits were hit by increase in commodity prices and input costs.

On a standalone basis, Tata Tea reported a net profit of Rs 37.71 crore, which was lower than the previous year due to exceptional income last year and higher effective tax rate in the current year.

Sangeeta Talwar, executive director, Tata Tea, said, “Tea prices went up by Rs 16-20 a kg. We passed on some of it and absorbed some. The indication came very late, sometime in May, and so we could not pass on the entire amount.”

Percy Siganporia, managing director, Tata Tea, said, “Due to below-the-mark performance of Kenyan plantations, a lot of tea was replaced from southern India and so exports went up. This further increased domestic tea prices.”

Tata Tea was able to pass on Rs 8-10 per kg to consumers. It expects prices to be volatile in the upcoming season but did not comment on further price hikes for any of its brands.

“We have recorded a double-digit volume growth, although the domestic industry has seen a marginal increase in growth,” Siganporia said.

Analysts, who attributed the low growth to rising input costs and 20% higher tea auction prices, are facing a hard time analysing the company’s performance.

An analyst from a Mumbai brokerage firm said, “Despite being debt-free and having surplus cash from the Glaceau stake sale, the company has failed to post higher growth and profits. The margins continue to shrink.” The gross margins have shrunk by 300 bps.

Another analyst said, “Unless input prices stabilise, Tata Tea’s profits and margins will be further impacted.”

s_tanvi@dnaindia.net