Tata Tea?s campaign ?Jaagte Raho? has attracted a lot of attention. Much of this, along with its distribution and product widening strategies, enabled the company to bring about price increases even as volume growth remained steady. Sales for the quarter ended December 2009 , on a consolidated basis, grew by 20.7% over the same period of the previous year to touch Rs1,549.2 crore. And even if the revenues of Rs 120 crore originating from its newly acquired Russian beverage major Grand are removed, the company saw an 11.4% growth in the December 2009 quarter over the previous year. However the campaign, along with the launch of the T!on brand of soft drinks in Tamil Nadu would have taken a toll on the margins. The December quarter saw the advertisement and promotion (A&P) costs increase to 18.1% from 17% levels recorded in the September 2009 quarter. And then to add to the woes, the costs of key inputs rose. In the December 2009 quarter, the average price of raw tea stood at Rs112.4 per kg which was 22% higher than Rs 89 per kg recorded in December 2008. As a result, material costs, as a percentage of sales, grew to 40.3% during the December 2009 quarter versus 39% in the
September 2009 quarter and 37.5% in the same period of the previous year.
Consequently, the company?s operating profit margin declined by 115 basis points over the same period of the previous year to 12.6% in the December 2009 quarter. Going ahead, analysts expect that the company would keep facing margin pressure from the rising input costs and also from additional A&P spend. However, this will be in the short-term in the longer period, the company is expected to benefit from its wide presence in the global markets?it has 20.1% volume share in India, 26.8% in the UK, and 40.8% in Canada.
Additionally, its widening portfolio will fade out the effect of the lower profitable Tetley brand. Already, in the current quarter, Tetley contributed 40% of revenues as against 45.9% last year. Overall, the Indian tea business contributed 30% to its revenues as against 27.8% last year. So the company will be depending on a mixed brew to stay awake and ahead.