Analyst Meet / AGM - Analyst Meet
The focus will remain on improving the ROE and ROC
Tata Global Beverages (TGB) held its Analyst meet on 30th Jan'14 and was addressed by Mr Harish Bhat, MD and CEO.
Key highlights
Net sales for Q3 FY'14 for TGB were up by 6% to Rs 5828 crore reflecting a good performance in some of the key markets and favorable translation impact. The Tea pods business income gets added directly as royalty and does not become a part of sales.
There was a continuous investment on brands and higher advertisement spends in first 9 months of FY'14, which will not be there in the coming quarters. Restructuring activities for some of the products also affected the margins.
While performance was good for most of the geographies, EU continues to underperform and some of the geographies like Poland and Czechoslovakia continue to struggle. Also UK market is behaving very cost conscious and tough competition prevails requiring higher advertisement spend.
Coffee prices particularly Arabica behaved in a very volatile manner where prices at one point of time went below 1 US $ and on higher side it crossed US $ 2. High volatility cannot be passed on the consumers at such a fast pace. Hence, the coffee margin got crashed to 7.7% for the quarter for the company.
At the current moment, the prices have stabilized and things are getting back on tract, so margins in Q4 should be stable and better than Q3 for coffee business.
Tea business continues to report strong performance across the geographies. There was a 17% growth in top line across the India tea portfolio mainly due to value and volume increases despite decline in tea category. Green tea was launched in India in Jan'14.
In Australian market, the Tetley continue to do well and profitability remained robust.
In Canada, having started the business directly with the retailers, lot of communications, in store activities, commercials were done, to uplift the brand. Management is confident of this market to perform exceedingly well in the coming quarters. Also Tata Tea, the Indian Tea brand was launched in Canada in Diwali Season.
Management also expects the Czechoslovakia market to turn to green by the year end. With this now with company operating in more than 40 countries, only few markets like Poland, Bangladesh and Pakistan which contribute minuscule to the total turnover of the company are in losses.
UK business saw lower demand and consumption within the customers as the recession effect can be visible in this country. New marketing and impactful marketing campaign for Tetley was undertaken to response the increase in competition. Leadership was maintained in Red Bush category of tea business.
Water business saw more than 30% growth in volume although the business is yet to break even. Water business will contribute significantly to the company going forward in terms of profitably although currently it is yet to break even at PAT level.
Starbucks extended its presence in total 3 cities in India i.e. Mumbai, Bangalore, Delhi and Pune. The JV has total now 34 stores and is operating robustly.
Going forward, the management continues to be optimistic about its Water business, Starbucks business and continued to emphasis its focus on profitable growth and increase of ROC and ROE. Going forward the margins will improve and the company is confident of reaping the benefits of many of its brands which are currently in investment phases.
As discussed by the management earlier that the company has not taken the deferred tax credit in H1 FY'14, which it will take it in H2 FY'14 and thus will get the lower tax rate benefit in H2 FY'14. Overall FY'14 tax rate will hover around 26-27%.
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