CMP = Rs 762 (as of Tuesday)
Price target: Rs 970
Key points
- In FY2007 the consolidated net sales of Tata Tea Ltd (TTL) grew by 29.6% year on year (yoy) to Rs 4,024.9 crore. The growth was mainly driven by higher branded sales across the business and the inclusion of revenue of Rs 558 crore from new acquisitions. The organic growth in FY2007 was 11.5%. Branded sales now constitute around 89% of the total sales compared with 85% in FY2006.
- TTL reported a 24.6% year-on-year (y-o-y) jump in its consolidated net profit (adjusted for extraordinary items) to Rs 366.2 crore.
- In the domestic market, the company reported a top line growth of 9% to Rs 1,054 crore in FY2007. The branded business (which constitutes 80% of the sales) continued with its impressive performance during the year, registering a 9% growth in volume and a 12% rise in value compared with that in the last year.
- For the same period, the turnover of the Tetley group (a 77.7% British subsidiary of TTL) was Rs 2,298 crore, which was 13% higher than that in the previous year. The organic growth was 8.5% which includes the benefits of exchange transactions. For FY2007 the profit after tax (PAT) of Tetley was lower by 12% at Rs 130 crore as against Rs 147 crore in FY2006. The PAT was lower mainly on account of an interest charge incurred due to the acquisition of Energy Brands Inc., USA (EBI).
- TTL is selling North Indian Plantation Operations (NIPO), which includes 24 tea estates in northern India, to a new company called Amalgamated Plantation Pvt Ltd (APPL). The sale would be effective from April 1, 2007. We believe that this move is in line with TTL's overall strategy to focus on packaged and specialty tea.
- I believe the company is poised to become a strong player in the beverage market by penetrating new geographies through the inorganic route as well as by gaining presence in every segment of the beverage industry.
- On the valuation front, the TTL stock looks attractive at 11x its FY2009E diluted consolidated earnings per share (EPS) when compared with its peers in the fast moving consumer goods (FMCG) sector, especially when with the sale of NIPO, TTL has become a pure branded FMCG play.
- I maintain Buy recommendation on the stock with a price target of Rs 970.
