Moneycontrol
Nov 15, 2017 04:08 PM IST | Source: CNBC-TV18

See robust growth for brands biz, no plans to demerge it yet: Tata Global Bev

The good EBITDA margin performance was on back of overall business efficiencies, good cost management and management of commodity costs, said Ajoy Misra, MD, Tata Global Beverages.

CNBC TV18 @moneycontrolcom

Tata Global Beverages posted a good set of second quarter earnings. While there were no major fireworks on the topline, the company is seeing early benefits of its restructuring operations.

Ajoy Misra, MD, Tata Global Beverages in an interview to CNBC-TV18 spoke in detail about the earnings and the outlook going forward.

He said the underlying revenue growth for the company was around 6 percent in Q2 excluding forex impact, which largely came from branded business.

The rise in EBITDA margins did not happen because of any cuts in ddvertising and promotions but in fact the company continued to invest in brands and promotions, he said.

Good EBITDA margin performance was on back of overall business efficiencies, good cost management and management of commodity costs.

The finance costs for the company has also come down, which helped our performance and we will continue to focus on that going forward as well, said Misra.

Tata Gluco+ has been a runaway success for many quarters now. It is an excellent product and in a sweet spot in terms of pricing, said Misra. The packaging, product formulation are both interesting and it is set for growth, he said, adding that it has now been extended to other states. Other water brands like Himalayan Still, Himalaya Sparkling, Tata Water Plus have also seen good growth, said Misra.

When asked about any merger plans with Tata Chemicals, he did not comment on that but said whenever they see synergies within the group, they closely look at it.

He also clarified that as of now there are no plans to demerge the branded business.

Optimistic of future growth, he said post demonetisation and GST, India business which is 45-46 percent of entire branded revenues has come back into robust growth mode.

Below is the verbatim transcript of the interview.

Latha: Your revenues have grown by around 4.3 percent. That is what, Rs 1,700 crore this quarter. Can you tell us what has been the revenue only of your branded business and margins of that business?

A: In underlying terms, we had a growth of six percent in the quarter because the difference between the underlying terms and the figure that you mentioned is the forex impact. But if you account for actually underlying performance, we have grown the business across the company by 6 percent.

In terms of, if I understand your question right, where did it come from largely, this has come largely from branded business and in order of priority, it is the India business that is the major contributor to this topline growth followed by, topline growth in branded business in our Eight O\'Clock coffee but in a lesser proportion in the US. Those are the two main components of the topline growth that we have seen.

Anuj: Your margins have risen from 11.5 to 12.6 percent. Can they rise further?

A: Our earnings before interest and taxes (EBIT) percentage has risen in the first half to be around 11.8 percent. It has gone up over the previous year and I must put this in perspective that it is not coming from any cut in advertisements and promotions (A&P). In fact, we continue to invest behind brands and our promotions, you can consider this to be a sustainable kind of EBIT and it is not propped up by a cut in advertising.

In fact, we have planned to spend more and that is the trajectory we are on. And whether it be the India investments behind our Tata Tea brands or the Jaago Re campaign or the investment in UK behind our Super Tea green tea campaigns or in Canada for the launch of our Tetley ready-to-drink (RTD) entry, there is a significant spend happening in that.

If you were to know what could be the reason for a healthier EBIT margin, I think A, I would say overall efficiency of the business, very good cost management which all the initiatives that we had taken are kicking in. we have managed commodity cost very well, both in tea as well as in coffee. So it is a combination of all these that has given us a much healthier EBIT percentage.

Surabhi: A word on the finance cost as well which has come down quite a lot. The debt has been coming down. The long-term debt is now about Rs 430 crore. Are you planning to pare down debt further? If so, if you could give us the quantum and timelines?

A: We cannot talk about that. Of course, we have plans. Yes, our finance cost has come down and I am afraid I will not be able to get into specifics of that, but yes, you are right, finance costs have come down and that has also helped our performance. It is a continuing journey that we have.

Anuj: Gluco has been a runaway success. Any further plans to expand its reach and variants?

A: Yes, absolutely right. Tata Gluco Plus has been a runaway success. It has been so for the last many quarters and I think it is an excellent product at a sweet spot in terms of pricing. It has an innovative delivery in a packaging of a cup format which is very unique.

Product formulation is also interesting and it is set to continue its growth because where it is happening from is we entered two states in southern India, we have now extended it to a few more states in western and central India. And vast parts of India are still not covered with Tata Gluco Plus because the model here is we appoint bottlers and the product is then bottled and sold in a certain radius around the bottling plant because the whole model is about getting the logistics costs under control to reach those sweet spots in pricing. And as we roll out and get more bottlers and cover more parts of the country, I think Tata Gluco Plus will continue to grow.

Having said that, it is not as if our other water products and brands are not growing. We have had a very good growth coming from the Himalayan brand and in the last year and a half, we have seen very good growth, in fact mostly in double digits in terms of its growth which Himalayan still. As you know, we have also now launched Himalayan sparkling as well as Himalayan flavoured. So there is a good story there and also, Tata Water Plus is showing good growth.

Latha: Actually, I wanted to ask you a more group question. Tata Chemicals has some consumer brands like consumer salt for instance. Will you and Tata Chemicals every care to combine some of your brands into a new consumer company or will you buy up Tata Salt from Tata Chemicals since you are the consumer facing company?

A: I would not like to comment on that because Tata Chemicals is a separate listed company and they have their own business plans and growth plans and we have ours. All I can say is wherever there is synergy that we see within Tata Group companies, we are always looking to find those synergies and they have a very interesting and a very deep play in research and development (R&D) and they have an innovation centre so we look closely as to how we could collaborate on innovation in the beverage sector. So, it is really looking for synergies, but your specific question is not for me to answer.

Latha: I am asking you because your Chairman, Mr Chandrasekaran, when he spoke to us last, said that the Tata Group has nearly a billion customers and let me quote him, \'the biggest opportunity for the group is on the consumer business side\'. And let me quote some more of his word, \'I feel the domestic consumer market is huge\'. That is why I am asking you, is there any effort on the part of the group as well to scale up your business considerably?

A: No, you are right. He is also the Chairman of Tata Global Beverages and rightfully so, he is exhorting of all us to drive aggressive growth and yes, the Indian market place has vast potential and so far, we are only playing in one small part of it which is in branded tea. And of course, we are looking at adjacencies.

You may have noticed that we have entered branded coffee in India with Tata Coffee Grand. We entered with instant coffee and now, we have brought out roast and ground version of Tata Coffee Grand, so we have entered a new category in coffee. I just spoke about the water segment in which we have extended Himalayan still into sparkling and flavoured.

We have under Tata Tea, launched a pilot product, the first time entry in RTD iced tea. Fruski is our brand which we have pilot launched in the National Capital Region (NCR) around Delhi. Very recently, we have also looked at a pilot in Bengaluru Tata Cha. So we are looking at increasing our play in this vast market place which India offers those opportunities. So yes, we are aligned to that.

Latha: Will you look at demerging the brands business itself and listing it separately?

A: At this point in time, we have no such plans. So, I will not be able to comment on that.

Anuj: Last year you did about Rs 6,500 crore in revenue. What is the full year revenue guidance for this year and by when can you be a Rs 10,000 crore company?

A: We have avoided giving specific numbers going forward. All I can say is I think we have set ourselves a momentum and I think we can sustain this momentum, we can grow this momentum. We are very happy that post demonetisation, post GST, our India business which roughly is 45-46 percent of our entire branded revenues has come back into very robust growth mode. And, I think you will see in Tata Global Beverages the momentum continuing.
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