• Commercial paper programme - Rs. 15.9 crore Rating : P1+
• Fixed deposit programme Rating : FAAA (reaffirmed)

Crisil has assined a ‘P1+’ rating to the Rs. 159-crore  commercial paper programme of Tata Tea Ltd. It has also reaffirmed its ‘FAAA’ rating for the company''s fixed deposit programme.

The ratings reflect Tata Tea’s strong market position in the volatile tea industry, its improving product mix towards the value added tea segment, favourable performance on operating parameters, its favourable financial position, improved operating cash flows, and strong liquidity position. The ratings also factor in Tata Tea’s association with the Tata group of companies. The ratings, however, do not factor the impact of Tata Tea’s proposed acquisition of Tetley Ltd of the UK. In future the funding mix for this acquisition would be a key rating sensitivity.

Tata Tea, part of the Tata group of companies, is engaged in the manufacture and marketing of tea and instant tea. The company is currently the largest integrated manufacturer of tea in the world and the second largest player in the domestic packet tea market. It also exports tea, instant tea and other commodities like coffee, spices, etc. The company discontinued its low margin coffee trading operations during 1998-99; consequently its tea business accounted for around 94.9 of gross sales, with the balance being accounted for by the other commodities. In 1998-99, the company reported a profit before tax of Rs. 145 crore and a profit after tax of Rs. 129 crore on gross sales of Rs. 847 crore.

During 1998-99, the company’s operating cash flows improved significantly on account of a significant increase in realisations in line with industry trends, a shift in product mix towards the value added packet tea segment, and a steady growth in the volume of tea sales. Accordingly, the company’s capital structure and interest coverage ratios improved to favourable levels. The company’s financial flexibility continues to be strong on account of large unutilised bank lines coupled with an enhanced liquidity position owing to the sale of certain strategic investments in the current financial year. While in 1999-2000 the company’s operating margins are expected to decline due to lower tea production and depressed tea prices, in line with industry trends, the company’s net margins and accruals are expected to remain strong on account of the sale of strategic investments.

The company is in the process of finalising the acquisition of Tetley Ltd, a UK-based global beverage blending and packaging company. The details are yet to be firmed up.