See strong volume growth in domestic biz: Tata Global

Despite adverse conditions, Tata Global Beverages posted strong numbers for the first quarter of FY13. Revenues gained 18% year on year to Rs 1,725 crore, while operating profits jumped 55% for the same period.

In an interview to CNBC-TV18, managing director Harish Bhat says that the company sees this strong double-digit volume growth continuing in the years ahead. Meanwhile, Tata Global also saw strong growth from its international markets such as the US and UK inspite of the stress in those countries. Even after implementing a price hike, Bhat says that they did not see any volume growth decline in those markets. “We expect margin expansion in the international coffee business to continue,” he added. Below is an edited transcript of his interview with Udayan Mukherjee and Sonia Shenoy. Q: Can you strip off the currency gains from your numbers and tell us what the real operating picture is, both in terms of revenue growth and margins? A: We have got a good operating quarter for Tata Global Beverages. We have registered consolidated revenues of Rs 1,725 crore, this is for all our markets across the globe. That is an increase of 18% over the same quarter in the previous year. If I were to strip away the forex gains on that account, the revenues are up by approximately 9.5%. In term of operating profits it’s been a very good quarter. It’s up 55% over the same quarter last year, and there if I strip away forex gains, operating profits would still be 45% plus over the same quarter of the previous year Q: What is happening on the international front, because that is the one risk which people associate with your company because you are exposed to markets like UK, US and they are going through difficulties of their own. Are you experiencing any kind of sluggishness in the international business? A: We have seen growth in both the UK and in the US despite having implemented price increases in those markets. In the beverages category this is close to peoples’ heart. This is a consumer product which is consumed everyday in those markets; we are not seeing any volume drop offs at this point in time. I do agree that those economies are going through stress, but in the quarter that we have just completed, I think we have posted strong results both in the UK and in the US. Q: What kind of volume growth are you seeing in the international tea business? I know you took price increases and that has also shored up your margins and profitability there, but just pure volumes in the international tea side? A: We are seeing single digit volume growth in the international markets in tea. In UK, volumes growth has been in single digits over the same period last year and in the US as well. There is a difference there on how the black tea markets are performing and how special tea markets are performing. Black tea markets have seen a decline in market size overall in some of these developed economies, included in the UK. However, special teas, which include green teas, fruit infusions and herbal infusions, is showing quite rapid growth. So we have to focus on both and we have very good line up of green, fruit, herbal infusions and those are also triggering growth in many of those economies Q: You have seen some jump in profitability in the international coffee business perhaps because Arabica prices are down. Do you expect expansion in margins to continue or accelerate going forward? A: I think you will see an expansion in margins in our international coffee business. Arabica prices are way off from their highs that they reached last year. Robusta prices have been firmer, but the decline in Arabica prices is going to contribute to margin expansion. Q: What about the domestic tea business, you have seen double digit volume growth there. Do you see that continuing? A: The domestic tea business has put in a fascinating performance in the first quarter. We have seen strong double digit volume growth. We have seen all our brands in this market, Tata Tea Gold, Tata Tea, Chakra Gold, Gemini, Kanan Devan, Agni and all brands put in a very good performance in the domestic market. I think we have gained both in terms of volume and market share and I would see strength of that performance continuing. We had very good campaign for Tata Tea in the first quarter, the ‘Soch Badlo’ campaign coming on the back of the “Jaago Re” campaign of the previous years. I think all this help connect the brand far more emotively to our consumers. That was a very positive campaign. It was talking about what consumers could do in their environment in a very positive frame of mind and you will see many of those kinds of marketing campaigns emanating from our company in the months and quarters ahead.