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Tata Tea Downgraded by Citi

July 20, 2007

Citigroup Research downgraded the price target of Tata Tea Ltd after a disappointing quarter. Consolidated EBITDA margins declined by 340bps due to high advertising and promotional expenses. Tata Tea’s consolidated revenues grew by 28% driven primarily by its Eight O’ Clock acquisition and strong branded sales in its domestic business, which grew 18%. Profitability was, however, hit due to a higher tax rate and higher interest charges. Net profit declined 3.5% to Rs44.5m

Cutting FY08E and FY09E earnings estimates by 15.5% and 3.5% to reflect lower than expected 1QFY08 results. Citi reduced EBITDA margin assumptions building in higher ad-spend for Tetley. Consequently, to reflect lower earnings, Citi has cut target price to Rs1045 (Rs1150 earlier) retaining our target P/E multiple of 15x mid-FY09E earnings .

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