Mumbai: Tata Global Beverages Ltd, the maker of Tetley and Tata Tea, recorded a 22.4% growth in its stand-alone (India business) net profit to Rs.71 crore for the quarter ended 31 December on the back of price increases and a rise in health and wellness awareness.
Its year-on-year stand-alone sales, too, grew 17.7% to Rs.625 crore as the company invested more in its brands in India. Earnings growth also came from a 10% price increase and sale of more units—volume growth of 7-8%, according to Harish Bhatt , managing director of Tata Global Beverages. In an interview after declaring the December quarter earnings on Thursday, Bhatt shared recent market trends and growth drivers in a weak global and Indian economy.
The tea market is seeing some signs of contraction in the UK and Europe. Has that affected your consolidated sales that grew 6% from a year ago?
There are recessionary pressures in the UK and Europe that have seen the black tea market contract. Until these markets recover, growth will be derived from value-added teas in these markets and not the mainstream black tea. These markets account for 20-25% of our revenue. But markets like India, which is larger at close to 30%, and the others like Australia and Canada have seen good volume growth. There has also been value growth in most geographies, driven by value-added teas.
While a slowdown and inflation is affecting the regular tea market, how is it that your value-added, or premium, teas like green tea are doing well?
Green tea and value-added teas cater to the health and wellness trend, and they are also indulgent, new age drinks, which is leading to an explosion in growth. Tetley Green tea, in India, is growing at over 50% and at this rate, it will quadruple in four years.
Despite the high volatility in the tea commodities market, you posted a consolidated net profit growth of 25% from a year ago. What’s the outlook?
Last year, tea commodity prices went up significantly. Our pricing philosophy is very simple. We want to offer consumers fair-priced products. As commodity costs rise, we try to safeguard our margins. Tea prices are still firm but coffee prices are down compared with a year ago.
Our growth is derived from three to four factors. One is volume growth. Second, we have strong brands like Tetley and Tata Tea. So we have been able to protect and safeguard our margins even though commodity prices have risen. Also, value-added teas like green tea are higher-margin products and they add to the bottom line as well. The fourth reason is good cost management.
What is happening in the regular tea market in India? Are consumers downtrading?
We are not seeing any signs of downtrading (buying a cheaper brand) in the branded tea market in India. It may be happening in the loose tea market. We have a very strong brand and people buy brands for the quality, trust and brand image.
What about Agni, your entry-level brand?
On Agni, the key challenge is sustaining margins. Growth is not an issue; it’s coming from all across segments.
How is your alliance with Starbucks Corp. shaping up?
We have six cafes now—four in Mumbai and two at the Delhi airport. We are very happy with the partnership. The stores are doing very well.