Tata Global Beverages Q3FY17 Concall Summary

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Key financial updates

Tata Global Beverages Financial highlights
  • Revenues for Q3 were up 3% y-o-y mainly due to volume growths in the tea segment
  • Growth in the underlying currencies for Q3 were up 5% y-o-y
  • Operating Income for the group increased by 2.5% y-o-y (+5% y-o-y in underlying currencies). On YTD basis, operating income grew by 1.3% to reach INR 5,105 Crores (+2% in underlying currencies).
  • Consolidated Net income increased by 119.6% y-o-y (YTD basis: +74.1%)
  • Profitability is majorly driven due to good commodity cost hedging, good control over FX, lower level of commodity costs as well FX hedging
  • Improvement at the group level in two major areas – profitability and return on capital (Lower capital employed due to 1. Improvement in working capital and cash release from working capital 2. Benefits realized from currency translation)
  • The group has gained market share by 100bps approximately over 12 to 18 months period (current market share about 21%)
Tata Global Beverages Q3FY17 Segmental Highlights

Key business updates                                                 

  • The group witnessed an increase in the amounts spent on advertisement (on q-o-q basis)  to strengthen the brand presence especially in markets like India
  • Out of Tea, Coffee and water – Tea has a huge base (about 75% of the business), whereas water segment is expected to witness high growth (mainly due to a small base).
  • Tata Tea Gold mixture – blend which is specially created for Maharashtra – is doing well
  • Steady gains in the market share are observed Tata Coffee Grand

Strong performance in Non-branded business

  • Group is exiting China (factory and production venture which was set up in Hangzhou). The group expects no adverse impact from the write-offs.
  • A partnership agreement with Alibaba.com to provide Tetley products in China. Currently four SKUs are available.
  • Tata Coffee Ltd. Is expected to set up a production unit for freeze dried instant coffee in Vietnam with an initial capacity of 5,000 metric tonnes
  • Key segmental updates
  • Strong performance in the Non-branded business by Tata Coffee Ltd. Major improvement was in the instant coffee part of their business.
  • A decent improvement is observed in the coffee extraction driven by volume improvements
  • Moreover, instant tea under non-branded business has remained stable (both the topline as well as bottom line)
  • Improvement in tea plantation incomes and financial health. However, the topline is muted due to price fall as well volatile currency movements, particularly in UK.
  • Further, improvement is observed in the Tata Water Plus – new product launch (Himalayan Sparkling product in a glass bottle)
  • Despite of demonetization fears, Starbucks performed very well. Store level profitability as well LFL store growth levels were impeccable. Steady expansion of stores continues with a focus on adding new formats.

Key regional updates

  • Volume growth observed in markets – India, Canada, and UK
  • Group’s topline is impact due to depreciation of pound mainly due to Brexit. However, there is no material impact on the operating profit.
  • Further, since 2015, the group has achieved highest MAT value share for the Tetley brand in UK.
  • In USA, strong volume and sales growth have been observed in the coffee segment
  • New product launches: Brazilian Breakfast Coffee and some infusions were launched in USA which has shown positive response. Moreover, Super Green Tea product, which was a success in UK, is launched in US now.
  • In Canada, decent revenue growth. The group continues to be volume and value leader in this market. Most successful launches were the new Ayurveda line of teas.
  • In Europe & Russia – stable performance of the group. Slight growth in the revenues mainly due to price increases.
  • Company Outlook                                                                 
  • In India, strong campaigns are expected to follow in order to increase the brand awareness
  • For growth – the group is leveraging the shift away from black tea by launching new products. Moreover, it even has a robust strategy in place for different markets.
  • Going forward, the company plans to maintain an equally balanced focus on its three segments (tea, coffee and water)
  • No significant expectation on the Capex front besides the coffee project in Vietnam in FY 18.
  • No prices increases are expected in India. However, due to mix of premiumization changes, there might be some changes in mix, which will not be due to price