Tata Global’s India focus, restructuring to aid margins
Firm eyes market share gains, expansion, cost control to improve revenues
A weak March-quarter performance led to a 12 per cent decline for the Tata Global Beverages stock. But prior to the recent fall, the stock had doubled in value on the back of the company’s restructuring exercises, which included divesting of loss-making units in its international operations, such as those in Russia and China. The focus is to drive growth in businesses in India, which account for half of the firm's consolidated revenues.
While it is eyeing doubledigit growth in the domestic tea segment, incremental growth is expected from product launches. Tata Global is also planning to increase its market share in the tea segment as the unorganised (loose tea) market (with 45 per cent market share) is shrinking after the goods and services tax regime, in favour of the branded segment.
New launches and innovation in the premium segment such as specialty tea, green tea and tea bags, and brand extensions are expected to help in the near future. As a segment, tea accounts for over 70 per cent of its overall revenues.
While its Tata Coffee business (non-branded) was affected by lower crop harvest, its entry into the branded coffee market under the grand brand has helped it gain market share. The company is looking at further gains by using Tata Tea’s distribution network and leveraging on Tata brand. For its Starbucks joint venture, the company is on an expansion mode even as it has started making money at the operating profit level. Demand trends also continue to be strong with double-digit same-store sales (SSS) growth in 2017-18. While it closed FY18 with 116 stores, the company believes there is a scope for opening over 1,000 stores in the country in the long-term. Its other venture Nourishco, a joint venture with Pepsi, has broken even in the same period.
In the international arena, after exiting China and Russia, the company is eyeing to improve its margins by revamping its eastern European operations and may exit more international markets where it is not making profit. Its aim is to keep overall costs under control. The focus is on the Tetley brand in the UK and Eight O’ Clock in the US. The firm is hoping to ride on the fad for non-black tea in the UK. While the prospects are good, investors should wait for consistent growth in revenues and profits. The performance is expected to improve given restructuring of operations.