Pricing will remain stable in near-term: Tata Beverages

Hailing the Q4 growth the company has managed to achieve, Harish Bhat, managing director, Tata Global Beverage says customers can rule out the possibility of any product hikes in the near-term.

The company has posted a growth of 11 percent in its topline and 26 percent in its operating profits. Bhat credits the growth of various brands in different geographies for the positive numbers.

"We have seen many exciting blends of tea and coffee coming in, we have seen blends of green tea in the UK, we have seen an Estate Selections blend in the UK, and the new Ceylon and English Breakfast tea blends coming in Canada," adds Bhat in an interview to CNBC-TV18.

On the expectations of better tea margins, Bhat says the company will post stable margins due to its strong brands. This, Bhat says will happen due to the their investment in brands and on taking remedial action in pricing if tea prices sees volatility.

Below is the edited trancript of Bhat's interview to CNBC-TV18.

Q: It has been a subdued growth in terms of the sales figure of around five percent this quarter. Can you just take us this segmental breakup this quarter?

A: We have just declared our quarterly results this afternoon. We have seen 11 percent top-line growth and 26 percent growth in our operating profits. So, volumes have done well. Volumes in India have been on the upward tick and we have gained market share as well as volumes in the country.

We have grown in many other parts of the world. Australia has been a star performer of the quarter. We have seen good results coming in from the Czech Republic, France, and United States. So, overall sales values and revenues have seen an uptick in most parts of the globe.

Perhaps Europe is seeing slow growth compared to the rest of the geographies and maybe a little bit of a slowdown in Canada as well. These results have been possible because of very good product innovation that we have introduced across all continents.

We have seen many exciting blends of tea and coffee coming in, we have seen blends of green tea in the UK, we have seen an Estate Selections blend in the UK, and the new Ceylon and English Breakfast tea blends coming in Canada.

We have seen a new range of fruit and herbal tea being launched in Australia, strong growth in Green Tea in India and the re-launch of Tata Water Plus, which is India’s first nutrient water with brand new packaging happening all across the country. We have also seen good progress on Himalayan water in India, which is our brand of source bottled water.

These are some broad aspects of progress. We have garnered 11 percent top-line growth, 26 percent growth in operating profits, good expansion in our gross margins. That’s a very positive story from Tata Global Beverages in Q4. We are proud of the results that we have achieved.

Q: Can you just specifically talk about the prognosis for your tea business itself because this time around your margins did not see any improvement? It was stable at around 13 percent, if I am not wrong. Going forward because Kenyan tea prices have fallen in the last couple of months do you expect to see any kind of improvement in your profitability in your tea business itself?

A: The margins will be stable. I don’t want to make a prognosis about margins expanding or contracting. But margins are going to be stable. The Kenyan tea prices have come down in the last few weeks, but it is still too early to take a call on Indian tea prices because in India, we would get good trends once second flush production in Assam begins and that’s still some time away. So, it is too early to make a prognosis on tea prices sitting here just now.

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However, I would want to say that our margins are going to remain stable because we have strong brands. We keep investing in our brands and that ensures that if there is any volatility in tea prices we can certainly take the remedial action in terms of pricing of our brands in the marketplace.

Q: Just to extend that point with regards to the coffee business then. How exactly are some of your key brands such as Eight O'Clock Coffee doing in international markets and what would your outlook be or your guidance be on the coffee business in particular as well?

A: Tata Coffee, which is a subsidiary, has declared excellent results for last year, so that’s our Indian coffee business. If one takes Eight O'Clock Coffee, it has also seen a very good year in terms of profitability in the United States of America. We have seen a sharp rebound in profits last year compared to the year before. What is even more interesting about Eight O'Clock Coffee, is that it is now getting a strong foothold in a new emerging part of the coffee market in the United States, which is the pods market, the coffee machine market.

Eight O'Clock Coffee has an arrangement with Keurig which is the leading coffee machine player in the United States of America and it is finding its way to many more consumer homes through the pods market now. I would be very excited with that and I would think that segment of the market is going to see further expansion in the future. The other area where Eight O'Clock Coffee has done well to lock-in margins in growth is the introduction of new flavours of coffee.

For instance, just in the last two quarters we had the introduction of a limited edition Chocolate Mint flavoured coffee, which has done very well in the markets. So, I think the introduction of new flavours, which take the brand up the premium ladder and the introduction of pods and many more varieties of pods in the United States of America are going to be two exciting dimensions of Eight O'Clock Coffee’s growth.

Q: Are you planning any more price hikes?

A: At this point in time, I think pricing is stable. It is too early to call a prognosis on tea costs and tea prices, so I would think stable pricing is what I would expect in the near-term.

Q: How the footfalls within the Starbucks business or the franchise is doing at this point or rather the joint venture and what exactly would be the expansion plans in terms of opening of new stores and what sort of footfalls are you currently estimating or even sales, which are you are estimating for FY14?

A: Starbucks stores continue to be buzzing with a lot of activity, a lot of consumers. We now have 13 stores in the country managed by Tata Starbucks Limited, which is our joint venture with the Starbucks Coffee Company. I don’t want to comment on our expansion plans at this point in time. Our focus remains on giving our consumers a splendid coffee experience – that’s what Starbucks is famous for the world over and that’s what Tata Starbucks will bring all our consumers in India. So, one can look out for a lot of action from Starbucks, but 13 stores and all of them buzzing with activities where we are at this point in time.