Elevated tea prices and rising competition is making it difficult for Tata Global Beverages Ltd (TGBL) to pass on costs to customers
Its recent initiatives in the coffee segment may just hold up margins and that is something investors will be closely watching here on
Mumbai: Tata Global Beverages Ltd (TGBL) brewed some hits and some misses in the March quarter. The positives were that the company clocked a five-year high volume growth of 12% in its domestic tea business. Tata Global has been eyeing higher volume growth for some time and has finally delivered on this front.
The second highlight of the TGBL Q4 results was the improving instant coffee business, which too recorded its highest-ever sales volume. Besides, TGBL’s international tea business in the UK delivered revenue growth of 4% and volume growth of 7%.
But, those were about the only positives. Given tea prices were stronger than last year, the domestic margin profile has deteriorated. The company has not been able to pass on the rising costs to customers. TGBL’s standalone Q4 margins came in at 7.5%, as against 9.8% a year earlier. Analysts say an inferior mix of products and lower sales realizations hit margins, despite the higher volume growth.
Overall, for FY19, TGBL posted 6.4% rise in revenue. Consolidated net profit, however, did not keep pace, falling 16.4% to ₹474 crore. The company raised brand promotion costs marginally to about 7.5% of overall consolidated revenue.
Revenue growth received a boost from faster growth rates at some of its recent ventures. Recent improvement at the Tata Starbucks joint venture, which clocked 30% increase in FY19, is an encouraging development.
In the coming quarters, a new freeze-dried coffee plant that opened in March with an annual capacity of 5,000 tonnes, is expected to aid revenue growth. To that extent, TGBL is pushing itself in the branded products business. It has acquired new brands for about ₹101 crore and that should add about ₹70 crore to annual revenue. This should keep the momentum going on revenues over the next few quarters.
However, a major concern is margins. Elevated tea prices at domestic and international markets, and rising competition make it difficult to pass on these costs to customers. That’s why TGBL share prices have remained flat at about ₹209, despite a strong recovery in the stock markets. Some of its recent initiatives in the coffee segment may just hold up margins. But that will be something investors will be closely watching in the coming quarters.