The moderation in CTC Tea prices led to an expansion in the standalone gross
margin for TATACONS in the last five quarters. The average price from Jan’22
to Jun’22 declined by 11% YoY to INR147.6/kg. However, floods and extreme
weather events impacted production in Jun-Jul’22 (17%/15% decline YoY to
141.3/152.6m kg in Jun/Jul’22) and led to a surge in prices since Jul’22 (up
3.8%/11.7% YoY in Jul’22/Aug’22).
Going forward, with an expected normalization in production, we expect Tea
prices to remain stable or moderate from current levels, thereby improving its
gross margin in FY23.
We expect a sales/EBITDA/PAT CAGR of 11%/19%/31% over FY22-24.
Factoring in an in line performance in 1QFY23, we maintain our FY23 and FY24
earnings estimate. We arrive at our SoTP-based TP of INR890 per share and
maintain our Buy rating.
The moderation in Tea prices led to an expansion in the standalone gross margin for
TATACONS in the last five quarters. The average price of Jan’22 to Jun’22 declined by 11% YoY
to INR147.6/kg. However, floods and extreme weather events impacted production in JunJul’22 and led to a surge in prices since Jul’22. Going forward, with an expected normalization
in production, we expect Tea prices to remain stable or moderate from current levels, thereby
improving its gross margin in FY23. In this note, we have analyzed Tea prices and production
trends and its impact on TATACONS.
In the CY21 Tea season, production in India rose 7% YoY to 1,343m kg. This
eased the supply crunch that occurred in CY20 (a 10% YoY decline in volume to
1,255m kg), resulting in a moderation in prices till Jun’22.
Tea production for the current season YTD (Feb-Jul’22) is flat YoY at 613.94m kg
with better production in South India (7% YoY growth), offset by a 2% decline in
North India (which contributes 82% of total Tea production in India). Production in
North India declined due to a 4% lower/flattish production in West Bengal/Assam
(which contributes 30%/50% of India’s total Tea production). As Assam and West
Bengal constitute ~80% (CY21 season) of total Tea production in India, a loss of
production in these regions led to an increase in Tea prices across India.
All India Tea production during the first flush (Feb-Jun’22, contributes 32% of
the whole Tea cycle volume in CY21 and is the best quality) rose marginally (3%
YoY), led by a strong 23%/24% growth in production in Apr’22/May’22 but was
impacted by a 17% decline in Jun’22 due to floods and pest attacks in the main
producing regions.
Heavy rainfall in Jun’22 flooded Tea gardens in Assam, making plucking of Tea
leaves difficult for workers. This resulted in lower production in Assam, down
19% YoY to 74.35m kg in Jun’22. Heavy rains in West Bengal’s Terai and Dooars
regions too impacted Tea production (down 21% YoY) in Jun’22.
In Jul’22, several Tea gardens were impacted either by land erosion, rivers
changing course, and excess rainfall in the region. July is the start of the second
flush (i.e. July to September, and is of the second best quality) and contributes
38% to total volumes in CY21. In Jul’22, all India production fell by 15% YoY to
152.57m kg, with a major decline in Assam (down 20% YoY).
All India Tea production in CY22 is expected to be higher YoY, with the impact
of the floods wearing off and no other extreme event expected.
Sunday, September 25, 2022
Tata Consumer Products results update
Merger of entities with Tata Steel will simplify management
Merger of seven entities with Tata Steel will allow simplification of management and help with sharper focus on the business, Koushik Chatterjee, CFO of the steel giant, said.
On Friday, the board of Tata Steel approved the amalgamation of its seven subsidiaries -- Tata Steel Long Products, Tata Metaliks, The Tinplate Company of India, TRF Limited, Indian Steel & Wire Products, Tata Steel Mining and S&T Mining -- into itself.
''We have been driving simplification across Tata Steel for some time. The objective is to consolidate the subsidiary businesses within Tata Steel to drive simplification of management and also have a sharper focus on the business,'' Chatterjee told PTI.
After successfully integrating Bhushan Steel, which was much larger and more complex, this was the next natural step, the official who is also an executive director of Tata Steel, said.
In 2018, Tata Steel through its wholly-owned subsidiary Bamnipal Steel Ltd (BNPL) completed the acquisition of controlling stake of 72.65 per cent in Bhushan Steel Ltd (BSL).
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Tata Steel CFO Koushik Chatterjee explains rationale behind mega-merger
Tata metal companies merger a big positive; TRF shareholders will be only losers from this: Analysts
Tata Steel Ltd had won the bid to acquire debt-laden Bhushan Steel in an auction under the insolvency process.
On the merger, the company official further said: ''The net present value of all synergies will be over Rs 1,000 crore, which is a material value unlocking potential. This covers benefits on cost takeouts, leveraging the synergies on procurement, commercial and financing synergies.'' All the businesses of the amalgamating companies have a good future. These businesses are part of Tata Steel's enterprise strategy and the company has much more flexibility to grow some of these businesses faster, he said.
According to Tata Steel, the merger is also part of its continuing journey to simplify the group holding structure.
Since 2019 Tata Steel has reduced 116 associated entities (72 subsidiaries have ceased to exist, 20 associates and joint ventures have been eliminated and 24 companies are currently under liquidation).
On Friday, the board of Tata Steel approved the amalgamation of its seven subsidiaries -- Tata Steel Long Products, Tata Metaliks, The Tinplate Company of India, TRF Limited, Indian Steel & Wire Products, Tata Steel Mining and S&T Mining -- into itself.
''We have been driving simplification across Tata Steel for some time. The objective is to consolidate the subsidiary businesses within Tata Steel to drive simplification of management and also have a sharper focus on the business,'' Chatterjee told PTI.
After successfully integrating Bhushan Steel, which was much larger and more complex, this was the next natural step, the official who is also an executive director of Tata Steel, said.
In 2018, Tata Steel through its wholly-owned subsidiary Bamnipal Steel Ltd (BNPL) completed the acquisition of controlling stake of 72.65 per cent in Bhushan Steel Ltd (BSL).
RELATED STORIES
Moneycontrol Selects: Top stories this evening
Tata Steel CFO Koushik Chatterjee explains rationale behind mega-merger
Tata metal companies merger a big positive; TRF shareholders will be only losers from this: Analysts
Tata Steel Ltd had won the bid to acquire debt-laden Bhushan Steel in an auction under the insolvency process.
On the merger, the company official further said: ''The net present value of all synergies will be over Rs 1,000 crore, which is a material value unlocking potential. This covers benefits on cost takeouts, leveraging the synergies on procurement, commercial and financing synergies.'' All the businesses of the amalgamating companies have a good future. These businesses are part of Tata Steel's enterprise strategy and the company has much more flexibility to grow some of these businesses faster, he said.
According to Tata Steel, the merger is also part of its continuing journey to simplify the group holding structure.
Since 2019 Tata Steel has reduced 116 associated entities (72 subsidiaries have ceased to exist, 20 associates and joint ventures have been eliminated and 24 companies are currently under liquidation).
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