Tata tea on Wednesday reported a marginally lower net profit of Rs 70.6 crore for the year ended Mar ’03 against a net profit of Rs 71.9 crore in the corresponding previous year.

Income from operations stood at Rs 760.8 crore against Rs 777.4 crore in the previous period. Interest burden for the year was considerably lower at Rs 14.4 crore against Rs 21.4 crore in the previous year. The board recommended a dividend of 70% for the year ’02-03.

The company received a maiden dividend of Rs 25.3 crore from its overseas subsidiary, Tata Tea GB, the owners of the Tetley group of companies. As per Tata Tea’s consolidated financial results, the turnover stands at Rs 3,380 crore against Rs 3,046 crore in the previous year, while the net profit is Rs 117.1 crore against Rs 103.5 crore.

The overall business conditions for the company continue to be tough with falling tea prices, especially in the north and competition from regional players. During the year, Tata Tea separated focus on two core areas of business — brands and plantations. "We are looking at both the areas as separate profit centres. We combined sales and marketing to have a single focus on brand building," said Homi Khusrokhan, managing director of Tata Tea. Following the merger with Tetley, all future innovations and launches in the premium end of the tea market will be done under the Tetley brand. The company continues to follow its strategy of attacking costs and reducing high cost debts and replacing them with low cost ones.

Of a total debt of Rs 190 crore, company officials said they replaced about Rs 75 crore high cost debt (FDs) raised at double digit interest rates and replaced it with borrowings on single digit interest rates.

Tata Tea, earlier this month announced the completion of the refinance of the original debt raised at the time of acquisition by Tata Tea (GB) which has now been replaced by a fresh cost effective new debt at significantly lower interest costs and operating head room.

The refinanced debt will reduce Tetley’s annual interest charge by around £6m per annum with effect from ’03-04. The debt equity ratio of Tata Tea (GB) has improved to 1.7:1 by Mar ’03. The Tetley group was acquired by Tata Tea in a leveraged buy-out in March ’00. At that point of time, the debt/equity of Tata Tea (GB) was 3:1. Tetley is operating on the business model of outsourcing its tea requirement and concentrating more on brand building. Tata Tea too is following the same business model in India.

While exports to Iraq continue to be affected following the US-Iraq war, company officials said they are now exploring future trade opportunities with Pakistan, which now offers an average market potential of around 40-50m kg.

Tough competition from regional brands, falling prices and the emergence of new lifestyle beverages like coffee and iced drinks have hurt the growth prospects of the organised players in the Indian tea market.