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Tata Tea

Tata Tea -Forays non-carbonated drinks - launches TiON .

With tea volumes growing moderately in the domestic and international markets, Tata Tea (a strong player in the branded tea markets, both domestic and international) is seeking opportunities to expand its domestic as well as international beverage portfolio beyond tea and coffee, which could be a future revenue driver for the company.

In line with its strategy, Tata Tea has launched TiON, a tea and fruit based cold beverage in three variants—Mango Rush, Peach Punch and Apple Buzz—in a 400 ml pet bottle. The launch is an attempt to capitalise on the emerging health and convenience food and beverages trend in India.

The demand for carbonated drinks in India is softening, as more and more consumers (especially the youth) are opting for healthier beverages such as fruit juices and fruit-based drinks. Consequently, non-carbonated beverages are gaining good acceptance and the segment is growing at a healthy rate of 35-40% per year in the domestic market. We believe Tata Tea’s entry into this segment could be the much-needed revenue driver for the company.

The company’s focus on new geographies and new initiatives (such as green and herbal tea, fruit-based beverages and mineral water) augur well to sustain the growth at a consolidated level. At the current market price of Rs553, the stock trades at 8.7x its FY2010 earnings estimate and an enterprise value (EV) / earnings before interest, tax, depreciation and amortisation (EBITDA) of 3.2x. These valuations are attractive, considering the net cash (cash minus debt) of Rs81 per share (as on December 31, 2008). Buy the stock on declines, with the price target of Rs850.