Tata Tea’s Q4FY2009 numbers (derived from FY2009 and M9FY2009 numbers) are below our expectations.
The top line grew by 9.4% year on year (y-o-y) to Rs1,226.1 crore in Q4FY2009, which is below our expectation of Rs1,319.7 crore for the quarter.
Though the operating profit margin (OPM) is marginally above our expectation, a lower than expected top line and higher tax incidence led to a 43.1% decline in the adjusted net profit before minority interest and extraordinary items.
The OPM declined by 218 basis points y-o-y to 13.8% in Q4FY2009 mainly on account of higher raw material and employee expenses. As per our expectation, the raw material cost as percentage to sales surged by 327 basis points to 36.9%.
Employee expenses increased 22.3% year-on-year (y-o-y) to Rs156 crore during the quarter, which were higher than our expectation of Rs131.3 crore.
However a 240-basis-point decline in advertisement and promotional expenditure as percentage to sales led the margins to be in line with our expectation of 13.5% for the quarter.
Consequent to a y-o-y decline in the OPM the operating profit declined by 5.6% y-o-y to Rs168.9 crore during the quarter (as against our expectation of Rs178.8 crore).
Higher than expected depreciation charges and substantial jump in the tax incidence led to a steep decline in the profit after tax before minority and extraordinary items by 43.1% y-o-y to Rs56.3 crore during the quarter, which was below our expectation.
At the current market price the stock trades at 8.7x FY2010E earnings per share of Rs64.0.
We shall revisit our estimates for FY2010 and introduce FY2011 estimates after our interaction with the management. We maintain our BUY recommendation on the stock.