Tata Global Beverages saw a sharp decline in FY11 net profits due to a surge in input cost and increased advertising spend.
The beverage maker’s consolidated net profit dropped by nearly 35% at Rs 254.33 crore, while its consolidate operating income rose by about 6% to Rs 6,005 crore.
Profits were also under pressure due to higher interest costs, which nearly doubled to Rs 53.07 crore. The revenue growth was driven by price hike taken by the company across geographies.
Tata Global raised prices in India between the November-January period. The management said the company is open to more price hikes if commodity cost pressure continues going ahead.
“Commodity prices have increased much more than what could be passed on to consumers. There is also pressure from rising transportation and packaging costs,” said managing director Percy Siganporia.
Meanwhile, its raw material cost rose 11% to Rs 2,305 crore during last fiscal, while its advertising and sales expenses were slightly up by 2.71% at Rs 1,012.69 crore.
“Our adverting and brand building cost have gone up 20%. We are committed to investing in growth and transition going ahead,” Siganporia said.
The firm recently underwent an image makeover of its flagship tea brand Tetley, as part of a strategy to reposition the product and bring about uniformity across global markets.
Going forward, the company plans to focus on increasing topline, although it added that profits may remain under pressure if commodity costs continue to be high.
Currently, 95% of the company’s business comes from commodity dependent tea and coffee segment. In the next three to five years, the firm hopes to increase turnover from value added products, which the company aims to launch through various joint ventures (JV).
For instance, the company has a 50;50 JV with PepsiCo India Holding called NourishCo Beverages, which will launch read-to-drink beverages focusing on health and wellness platform.
Besides that, it also has a memorandum of understanding (MoU) with Kerala Ayurveda to form a JV, which will launch beverages and food products based on ayurvedic recipes.
Tata Global said the definitive agreement is still being worked out for this JV.
Shares of Tata Global Beverages closed the session, on Tuesday, down 3.71% at Rs 92.05.
Source: www.moneycontrol.com
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