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Ladies and gentlemen, good day, and welcome to Tata Global Beverages Limited Q1 FY '20 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vismaya Agarwal. Thank you, and over to you, sir.
Thank you, Neerav. Good evening, everyone. It's a pleasure to welcome you all on behalf of ICICI Securities to the Q1 FY '20 Tata Global Beverages Earnings Conference Call. We have with us today, from the management side, Mr. Ajoy Misra, Managing Director and CEO; and Mr. L. Krishna Kumar, Executive Director and Group CFO.I now hand the call over to you, sir, for your opening comments.
Thank you. And this is Ajoy Misra starting the call. And thank you to everyone for your interest in Tata Global Beverages and for joining in on this call. So with that, the presentation for the quarter ended June 2019, we start with the disclaimer, which you're all familiar with, which is on Slide #2, and I'm presuming that everybody would have read that.The executive summary of the quarter is that our consolidated group revenue for the quarter ended June, that group -- consolidated group revenue grew by 5%. EBITDA at INR 268 crores for the quarter ending grew by 7%, while profit before tax grew by 3%. India branded business grew 7% by value and 8% by volume. U.S. coffee grew 4%, while the other international businesses grew 3% by volume. TGBL and TCL Consumer Products Business merger is going as per schedule. And definitive agreements related to acquisition of consumer business of Dhunseri Tea has been finalized. Transaction to close shortly.So that was the executive summary. Now we get into a little bit more of details which I will lead with in terms of some business highlights and other comments, and then I will hand it over to Mr. L. Krishna Kumar, my colleague, to take you through the financials in more detail.So in terms of some initiatives and enablers that we have put into place to fuel business growth across India and international are that we are investing for growth in different ways. For example, the merger with Tata Chemicals Consumer Products business is one such example of growth -- investing in growth. Acquisition of Dhunseri Tea is another example of that. And we have some key points under each of the pillars that I'm going to talk about. Operationalizing the Freeze Dried Coffee plant in Vietnam brings growth into Tata Coffee's instant coffee business.[Think -- ] Other than investing for growth, we have initiatives and enablers under operational efficiency, structure simplification and digitally enabled end-to-end sales and distribution transformation journey that is underway in India for the India part of the business, which is a key part of our strategy to create, going forward, a platform on which Tata Consumer Products will take this company into different [ rides ] to start with from India. And then we are always backed up by initiative and innovation, both in international markets as well as our India base business market. So some examples of those are contained in this Slide #5.Coming to the next slide. This is a global picture of -- at the end of the quarter, how does the business pan out in terms of where we stand now in terms of our different parts. So if you take the turnover from India, which is essentially Tata Tea and then also Tetley and some other parts of our businesses, India becomes, as for the quarter's numbers, now 54% of our total business. U.K., Europe takes us to about 17% of the total. U.S., which includes Eight O� Clock coffee plus all our tea brands such as Tetley, Good Earth, Teapigs becomes 22% of the total business, and Canada is 4% of our business. In terms of non-branded business, which is INR 243 crores, largely Tata Coffee, 82% of that is Tata Coffee, then there are other non-branded businesses. So that was just a way of looking at it. For the numbers -- actual numbers, we'll give you a more detailed story.In terms of the context of the marketplace. In the Indian context, you all are familiar with the story on the FMCG growth. Quarter-on-quarter, if you look at it, it seems to be slowing down. But I think since we play in India largely with branded tea, branded tea has -- and we are not as affected as the overall story. So I just wanted to mention that. Though while that is the headline story that is playing out maybe for various other categories, we continue to show in the Indian context better and better growth. That's related to ourselves, of which we have clear data. But also, I think, overall, the category in India continues to be in similar growth mode as it was. So talks of a slowdown or a significant slowdown perhaps does not apply to us. So that was the Indian comment.Internationally, exchange rates story is what is also called out here, where you will see the interplay between USD and INR as well as the interplay between GBP and INR. Why I'm mentioning this is because that has a bearing on the way the numbers will look, plus, therefore, the underlying numbers look.In terms of market context, in terms of commodity, there is a story for North India tea and South India tea. There is a comment on Arabica coffee sales per pound. There's a graph that we will see which talks about Kenya. And then there is -- what's happening to Robusta coffee. All of these are commodity costs that touch different parts of our key businesses. So while there are benign tea prices in India and declining prices in Kenyan tea and coffee prices continue to be low in India, actually in the first quarter, and LKK will explain this point, for us, the commodity cost has been high. So how to interpret that is something he will talk about.If you look at the next chart on Slide #8 on the right, that is the international key markets of U.S., U.K., Canada in MAT basis category play. So as you can see whether it's the U.S., U.K. or Canada in varying degrees, the black tea category continues to be under strain. And the categories that are showing growth are specialty and fruit and herbals.So looking at Slide #9, performance at a glance across all our businesses, you will -- you have the numbers of India, U.S. coffee, other international, Tata Coffee and consolidated. So the revenue growth in India in the quarter was 7%. And in U.S. coffee, it was minus 1%. Other international, which is U.K., Canada and others was minus 3%. Tata Coffee had a very good quarter with a 30% growth, all of which averages out in weighted sales to a 5% growth on consolidated numbers for revenue. In terms of volume, it's been a much better story. India's volume growth is 8%. U.S. coffee grew by 4% and other international markets volume growth by 3%.Coming specifically to India, I talked about the 8% volume growth and 7% revenue growth, and 15.3% was its EBITDA margin, the India business. And the overall growth has been fueled by our key brands of Tata Tea Premium and Tata Tea Agni, which grew in double digits. And also, our recent launch of Tata Tea Spice Mix, the revenue has grown in excess of 50% compared to last year. So these have been the key spearheads which have lead the growth story for India.Also, not to forget that there are headwinds that we have in terms of Chakra sales, largely driven by the slowdown in Tamil Nadu due to the acute water crisis that hit that state. Increased competitive intensity, of course, amongst national players, and there are some examples below of some of the key campaigns and these stages that we have done in Tata Tea Gold and in Chakra.Coming to U.S.A., as we know, in U.S.A., the big business is Eight O� Clock coffee. We also have tea brands there. In terms of U.S. coffee, we've got volume growth, which I called out earlier. And in terms of tea, while the volume -- overall volume growth is not a great story but because the categories are declining, the hot tea categories, however, both Tetley and Good Earth brands gained market share in the quarter.In terms of coffee, there are some new launches which we have done, which are giving good news on the overall Eight O� Clock coffee story. And the launch of the Barista range and the Flavors of America in Eight O� Clock coffee are showing good distribution gains. However, while the EOC bags volume grew, revenue declined due to higher promotion spends and increased competitive intensity.In U.K., it's been a very good quarter, relatively speaking. We've got a 2% revenue growth, which is actually a underlying 4% revenue growth, and we got a 6% volume growth in Tetley. It's driven by different accounts, a mix of different accounts. And we talked about whole new categories launch that Tetley branded called Cold Infusions. Happy to report that our market share is now in excess of 20% in the U.K., and margins have improved.Other updates, of course, there are headwinds in Tetley Green Tea, which as a category actually is under strain. And there is increased competitive intensity in terms of brand spends and range rationalization. However, overall, a good quarter for Tetley and U.K.Coming to Canada, modest performance, modest growth. 4% revenue growth, 5% volume growth. The drivers has been specialty tea. They gained 1% in value market share, driven largely by the new launches of Tetley Supers range in Canada.Tata Coffee, which now includes also our Vietnam operations, there was -- it's been a good quarter: 30% revenue growth; 18% volume growth; and its EBIT margin came at 8.5%.Our joint venture, Starbucks, very good growth quarter, but it's been continuing like that for a while. So the growth story remains. We've seen a 23% revenue growth. The store count has become 151, 8 cities of India. And I think if there was one thing I would call out from this slide, those are Food 3.0 initiative, it's a good initiative, and our largest coffee forward store has been opened in Vittal Mallya road in Bangalore. But the news that they were awarded as amongst India's 100 best companies to work for is actually a true reflection of the kind of culture that the workplace and the partners, as they call all the employees who serve, who would bear out, and that's what makes this quite outstanding.JV with -- NourishCo JV with Pepsi, modest growth in the quarter, 8% revenue growth, 1% volume growth. And our associate companies, APPL and KDHP, both experienced revenue growth. However, both are under strain in terms of costs, largely driven by wage increases. So that's what the performance of our associated companies are.And now I'm going to hand you --- hand this over to my colleague, L. Krishna Kumar, to take you through the financial details.
Thanks, Ajoy, and good evening, everyone. Taking you through the highlights of financial performance, I'll first talk about the consolidated performance and then come to the stand-alone. Consolidated revenues went up by 5%, and we saw strong growth in India, volume growth of 8% and value of 7%. In the international part of the business, U.K. had a strong quarter with a value -- with turnover growth of 4%. It also improved share overall in black tea category. In addition, as Ajoy mentioned, the launch of the cold brew and infusions and the gain in market share also contributed. The coffee business saw lower volumes, primarily in the K-Cups, the bags and the rest of the business had a good quarter.Tata Coffee had strong performance, and the non-branded part of the business grew by over 30%. In the quarter, we started the first shipment out of Vietnam factory, and you'll see more contribution in terms of turnover and profits in the quarters ahead. Coming to EBITDA, India business profitability actually was impacted because of high tea costs carried forward from the earlier year. We would see improvement in tea costs going forward for rest of the year. There was also increased spend behind brands, not only in brand building but also in transformational sales and distribution of projects we are currently engaged in.In the international part of business, profitability was much better. And we will analyze the results, we'll see that opportunity significantly driven by cost restructuring and also on element of low commodity costs. The impact of the new accounting standard on lease is not material to our results. There's a slight increase in the EBITDA number but complicated by depreciation, interest cost as you're aware. The final impact on profit is not material.If you look at the effects of expenditure in the publication, you'll see that the main increase really is in the commodity costs and that too, it relates to India. As far as other elements of costs, employees and advertisement and other expenses, they are largely flattish. Other expenses increase would reflect the impact of Vietnam projects and some increased spend behind sales transformation. So overall, it has been a good quarter in terms of growth in top line and profitability. Strong top line growth by India. Impact on profitability because of commodity costs, which, again, is going to be short term and investment behind brands. International markets have improved performance, particularly on the tea side of business and profitability significantly better than the same period in the previous year.In terms of segment performance, you'll see that tea business had improved turnover, but profitability was impacted by the investments in India, which I just mentioned. Coffee had an improved profitability but a lower top line because of lower coffee prices as well as the fact that we did not do particularly well on the K-Cup side of the business this quarter. Going on to the next slide on M&A update. We are on track as far as the approval process for the merger of the Consumer Products Business of Tata Chemicals. We have completed the first track of filing with stock exchanges. We are awaiting the results of the review of the application by SEBI, and we expect communication anytime now. Post the approval, we will be filing with NCLT for the next phase of the process.In the Board meeting that earlier today, the Board also approved entering into a definitive agreement for the acquisition of Lal Ghoda and Kala Ghoda brands in Rajasthan. We had earlier intimated that we've entered into a nonbinding agreement. This will strengthen the brand presence in Rajasthan, give us increased distribution and also provide opportunity for some of our existing brands to scale up in Rajasthan. So we expect that this strategy of acquiring and consolidating regional brands will help us to grow business in some parts of the market where our distribution is weaker.Ajoy, do you want to talk to recognitions?
Yes. So during the quarter, we've got some good recognitions. I already mentioned the Starbucks, great place to work for in manufacturing. Indore Packeting Centre won a prestigious award for quality. In the U.K., we won 4 Great Taste Awards. In CSR, our DARE School has been recognized. Of course, Jaago Re continues to receive many more accolades. And Tata Coffee also was awarded the Best Green Business Award of Economic Times.In terms of sustainability initiatives, some of you are familiar with the fact that on plastic, TGBL has joined the UK Plastics Pact with -- has a commitment to 100% reusable, recyclable, compostable plastic packaging by 2025. On the India side, you're also aware that we have similarly, along with other companies, become part of the India initiative to recycle laminates, and we have met our target -- met and exceeded our targets that were agreed with the government for percentage of laminates to be collected for recycling.The Himalayan water, which we are pilot exporting to the U.S., is certified CarbonNeutral now by Natural Capital Partners. Internationally, Tetley is the 100% Rainforest Alliance certified, and Tata tea brands are close to 60% certified, and we are on a journey to make it 100% in India, which is a far more complex case. Project Jalodari that we have embarked on installing water recharge structures in production unit and water security for hill communities moves forward. And we have Improving Lives program of UNICEF, along with a [ Tetley Tea ] partnership reaching 0.25 million members of the Assam's tea tribes. And on carbon, we have been steadily reducing our energy consumption and carbon emissions.So that, ladies and gentlemen, is the presentation from our side. And we now will look forward to having comments and questions from you, which we'll appropriately take up for answering.
[Operator Instructions] The first question is from the line of Percy Panthaki from India Infoline.
My first question is on the India business. [ Had ] the gross margins of the India business have declined by about 250 basis points, and the commodity cost on a Y-o-Y basis meanwhile has been more or less flat. So can you just take me through the drivers of the gross margin, which has pulled it down?
First, we clarified, right, that -- see, we've been talking about it even in earlier quarters, right, we are -- this is that this quarter has had slightly and factored in last year, we did mention that we are focusing on some volume gain and are not necessarily going to be adjusting prices in the short term. We have had higher commodity costs in the last year. There is an element in the first quarter, which is continuing on opening stocks. So we had chose to focus on volume and allow temporarily some amount of top end margin.We talked about that in an earlier quarter. In addition, there is investment behind some new initiatives to do with sales and distribution transformation, which is also impacting margin. But this is not something which we expect to be a continuing trend. You will see that for some time till we finish our exercise of transformation.
Okay. So sir, this high-cost inventory that you've been carrying, does it continue into the September quarter as well or...
No, I think, in fact, it's not a high cost. We -- not only us, I think we have competition, and some other players also chose to have some amount of tea in the end of the year because there were certain regulations which limited the quantity of output in the last quarter last year. So many of us chose to come up with a slightly higher inventory at the start of the year. And we have shown you a trend of decline in feed prices. And we will see the benefit of that coming through in subsequent quarters.
Okay. So this -- most of the excess inventory from last year is exhausted. And September quarter, we should see more or less the cost reflecting which we have seen in the June quarter. That will get sort of consumed out...
Yes. I'm not specifically commenting on quarter-on-quarter. But yes, I think you will see some...
Not the -- I mean the trend, I mean, if...
On the trend perspective, I�ll [ clarify ], yes, and costs are lower going forward.
Understood. Understood, sir. And the other point which you've mentioned is this additional sales and advertising and distribution costs. Is that sort of a phasing issue? Or is it sort of a sustained increase that you believe is necessary for the health of your business?
No, I think we are -- I think these are initiatives which will not have a continuing impact, right? I'm not commenting on how many quarters it will be there. It's not that there's a fundamental change in our cost structure. No, that's not the case.
Okay. Okay, sir. And one question to Ajoy. You've done a 8% volume growth this quarter, with a slight 100 bps overall realization depth, and the value growth is 7%. So are you sort of satisfied with this performance? Or do you think that it can and it should be better than this?
So we are more or less on target. And quarter-on-quarter for the last few quarters, if you will notice, we have been steadily increasing our rate of growth, both of volume as well as value in India. And while we've come out slightly under what we were aiming for, but I think that has been the trend.And overall, we have -- we are satisfied with this. The reason for value being 1% lower than volume for growth is because the growth of some of our mass market brands has been far ahead of some of our other premium brands. So I guess that's been the volume story. So when Agni -- Tata Tea Agni and Tata Tea Elaichi surge ahead, that does create that kind of effect. But overall, I think all our national brands have seen decent growth, some in double digits.
Right. And the premium brand not going faster, you mentioned the main reason is the water issue in Tamil Nadu. So I mean in that context, is it correct to assume that this is a temporary sort of issue, and the premium brands will also start growing in line with the mass market brand very soon?
Yes. So to put it in perspective, we have a premium brand in south, and we then have national premium brand. So the premium brand I was referring to was Tata Tea Chakra, which mainly sells in Tamil Nadu. And I think you all are aware of the acute crisis. And the large part of the sales that happens in hot tea shops, et cetera, that had sort of got affected.Yes, but you're right, that phenomenon -- if the water crisis eases, then that phenomenon pressure eases. But premium brands of ours are not just in Tamil Nadu, also in north, we play with Tata Tea Gold and Tata Tea Premium. Agni is our economy brand. And Tata Tea likely plays also in that economy pricing brand. But our national brands have all given good growth, which is Tata Tea Premium, Tata Tea Agni. So that's the story on the Indian brands.
[Operator Instructions] The next question is from the line of Viraj Kacharia from Securities Investment Management.
I just had a couple of questions. First, I understand on the India business when you say that we have these initiatives on skill side, that [ technically ] in A&P and distribution expenses which we are reporting, right?
Yes, the -- in advertisement and also in other expenses. Yes.
Okay. So just to understand the profitability part of the India business a bit better, you mentioned about the tea prices -- tea costs being incrementally lower [ for also ]. So focus would largely be on volume and sharing that raw material gains to the end market? Or the focus would -- so how should we understand this?
So I think it will be Indian mix, right? It depends on the brand. So what we can say is that commodity costs are trending lower. And we will certainly pass on some of the benefits. But you should also remember that, in some cases, they are not [ taking up ] prices. So it really depends on market dynamics from state to state.
Okay. And second question was on industrial business. Now if I look at profitability, we are seeing almost close to high single-digit or even double-digit EBITDA margin. So...
Sorry to interrupt you, Viraj. Your voice is breaking. Can you please come in a better reception area?
Sure. Is it audible now?
[ Yes, go ahead ].
Yes. So my query is on international business, ex of the coffee brand, the brands business, tea business. If I look at the overall profitability for last couple of quarters -- last 2 quarters, we have been clocking around high single-digit [ margin ], close to double-digit EBITDA margin. And both of the gains coming up from rationalization in the NPL distribution expenses.So I'm just trying to understand that, is the current level of investment that you're making in those markets, are they kind of sufficient to at least maintain the kind of sales run rate which you are doing? Or how should we understand this?
Your question is too broad. But overall, the comments I'd like to make is that, yes, there is a trend of improving profitability. Some of it is because of the restructuring and cost rationalization we have done. Not all of it is because of reducing A&P expenditure. So I don't think that conclusion is entirely right. And overall, I think we are looking to -- the core brand investment will remain the same, but to the extent we launch new products or we do a brand refresh, there will be high brand spend in those periods.
Okay. So sir, just when you said that we have taken some restructuring expenses where we have seen cost savings or [ crore ]. And [ internally ], do we see any further levers in terms of further cost rationalizations or research? [indiscernible] a bit more in detail.
No, we have -- I think we talked about simplifying the structure. We have taken out some costs in supply chain. So these are 2 areas where if you looked at, unless there are -- there is some further scope from where we are, and we topped out at outsourcing some of the activities. So these are areas which are -- help us to improve profitability. Yes, there is still some further work which is ongoing to improve the cost structure from where we are today.
Okay. And any thoughts on -- in the '18 months that we talked about are reevaluating the portfolio in terms of [ I mean ] and look at other options. So any color you can provide on that?
I think we said that with the merger of the Consumer Products Business, Tata Chemicals, right, we are focused -- we are currently largely a beverage company to become a food and beverage company.The larger ambition is to be a broader FMCG company and look at other categories. So that is what we have said, and we are working towards that direction. We are completing the regulatory process. I think you will, in due course, as we expand products and further articulate specifics of the strategy, we will communicate here.
Actually, my question was more on the international business, the portfolio which we have. We talked about us reevaluating and probably even looking to exist on market portfolios.
No, I think that's part of an ongoing exercise which we do, like international is not different from other parts of the business. So yes, we will constantly evaluate, and we are evaluating our presence and the Panaro presence in some of the marginal market. So it's an activity which we will also do as part of the overall finalization of strategy of what we want to be doing, we will also be looking at our international portfolio.
[Operator Instructions] The next question is from the line of [ Samir Kshirsagar ] from Motilal Oswal Securities Limited.
My question is regarding the merger of the Consumer Product Business. So how should the investors interpret the -- this merger? Because -- Especially the products like salt being -- coming out of the product line, so what impact would it have on the future margins of the other products?
Not clear. Overall, I think we have made a presentation. I think I called also on thr slide on the impact of the merger. So overall, let's just to comment. We expect -- voice impacting -- there's too much of noise [indiscernible] [ Samir ], mute the mic.
[ Samir ], can you please mute your line from your side? Sir, go ahead, sir.
Okay. So we did say that what happens with this merger is that there are differences in distribution. [ We would get ] additional both direct and indirect [ fees ] for us will go up. We have an expanded product line. Salt, my overall -- the margin profile of the business will improve slightly from where we are with the merger.The details will be there in the presentation. As a starting point, it is expected to be neutral to marginally EPS accretive prior to any amortization once the allocation is finalized. But this is prior to synergies. We also expect synergies from the combination in terms of distribution cost as well as assortment of products. We've also given in the guidance of that, which should be available in the presentation.
The next question is from the line of Jigar Shah from Maybank.
My first question pertains to Tata Starbucks. There is an impressive growth in the first quarter. But can you give a little bit more color in terms of the same-store sales growth, especially in the backdrop of a bit of slowdown that we have seen in the QSR as well as in the general consumption segment? So any further light on the subject would be useful.
Yes. So our same-store growth continues to be good. And I briefly mentioned that -- so for us, sales is beverages plus food. And I think the combination of food -- and I talked about a new initiative that's launched, Food 3.0. I think our [ FSG ]story continues to be good. And I think we continue to be probably ahead of the category. So that's my comment, that we're not experiencing any significant effect of that.
Sir, one more quick question. On the Tata Chemicals Consumer Brands, while you complete the merger as per the statutory requirements. On the back end, are the growth initiatives being already pursued in terms of the sales distribution networks and also some of the categories that you want to build in terms of pulses, spices, ready-to-eat -- ready-to-cook products? I mean can you give some more update since the last quarter, like what kind of initiatives have taken on that?
No, I think it is -- we are working on getting on understanding and looking at both parts of the business in a holistic manner to see what are the areas, where is the revenue line and cost synergies. At this point in time, we have different things working on that. That's as much as I can share.
Based on distribution synergies, I must mention to you that even before this merger was happening, we had already started looking at synergies. So in terms of sales and distribution synergies, they have certain strong geographies. By geographies, I mean, states of India. And then there are some white spaces in terms of distribution and sales for us. And wherever there's complementary -- complementarity, for example, we are strong in Kerala; they are not so strong.They are very strong in Rajasthan; we are not so strong. So the process of already sort of combining and synergizing in terms of sales and distribution have begun. Similar to initiatives in modern trade and e-commerce in terms of looking at synergies have already begun. So in a sense, for us, this is just a seamless transition of rather than wait for everything to get finished and signed and permissions, the works starts. So I was just giving another example of that.
[Operator Instructions] The next question comes from the line of Priyank Chheda from Reliance Securities.
Sir, I just wanted to have a light on -- if you can share me the brand-wise growth of Tata Tea, Tetley and Eight O� Clock.
I think you had some [ foreseeing ] in the presentation, right? We said that India has grown at about 8% in volume and 7% in value terms. And in our deck which we've uploaded, we have talked about the volume growth in each of these. U.S. coffee, we said, is 4%. And overall, other international, which is mostly Tetley, is about 3%.
Okay. Perfect. All right. Sir, just another question on Starbucks. If you can help me with the revenue during the quarter and if you can share the EBITDA margins, and what are the expansion plans going ahead for that?
We don't give guidance on specific EBITDA margins. We only consolidate share of profits. So it doesn't affect our EBITDA margins, but we don't specifically give out EBITDA margins of Starbucks.
And sir, any expansion plans over there?
Yes, we have grown...
Year-after-year in the last couple of years, our rate of -- you would notice, the rate of store openings have been accelerating. That as much as we can tell you, and you could then probably extrapolate from that. And another point I can make is that, yes, now that everything is set, our templates and model is set in terms of how to grow faster and faster in terms of rollout, you will keep noticing that in our numbers as we share each quarter.
Okay. Sir, just a last question. Are there any tax benefits available for Vietnam Tata Coffee plant or applicable tax rate for that?
There are -- there are benefits because of location in terms of trading with other countries. Other than that, I'm not looking -- because trading with other Asian countries, in some of the countries, there is differential regime. That's primarily the most significant benefit.
[Operator Instructions] The next question is from the line of Viraj Kacharia from Security Investment Management (sic) [ Securities Investment Management ].
I just had one question. Dhunseri, if you can talk about what sort of scale and profitability that brand is already doing? And what are the levers to initiate [ towards ][ that brand ]?
The question is not clear. Your voice is cracking. Request you to repeat it, please.
Yes. On Dhunseri, can you just talk about scale and profitability of brand and how we see the growth part on that version?
Sorry, your voice is breaking off, and we just not able to -- I get...
[ I'm sorry ]. Am I audible now?
Just try. Give it another try.
So what I meant is on Dhunseri, just trying to understand what kind of scale and profitability that brand is already doing? And how should one understand the growth part on that brand?
Dhunseri. Okay. Yes, so Dhunseri is for mainly Lal Ghoda, though there is also a small part of Kala Ghoda, which is dust-based tea, and it's a strong brand in Rajasthan. Rajasthan is a white space for us. Both the 2 national big-branded tea players have a very low single-digit market share there.A bulk of the big tea market the Rajasthan is. It's an aggregation of lots of regional and small local players. Amongst most -- all of them, Dhunseri, which is Lal Ghoda -- Dhunseri Lal Ghoda is one of the top brands in terms of not just quality and -- of tea and premium pricing but also in terms of market share. However, not much investment or a growth appetite has been built into their plan till date. We've studied the whole operations.And we believe that with our overall marketing and our synergy of combining the Tata Tea's sales and distribution reach with their own sales and distribution system that they have, plus when we transition eventually to Tata Tea Lal Ghoda, we will be able to end with more professional marketing, not just resources but investment that we would be able to bring good growth into the brand. As well as in the combined synergistic distribution systems, even our Tata Tea brands like Tata Tea Agni, which is at a different price point than Dhunseri, can also experience good growth. So that's how we see it going forward. Hope that answers your question.
[Operator Instructions] The next question is from the line of Ekta Bhalja from Karma Capital Management.
Just a clarification. The presentation mentioned for India EBITDA margin of 15.3%. So that will largely indicate the stand-alone margin and not necessarily the branded tea margin, correct?
Correct, because that's we published. So it is a stand-alone margin.
Okay. And would you be able to share the amount of digital income that is part of the other income in your stand-alone numbers?
We will be with you if you touch base with Ashish, or I think there's a contact, Ibrahim, in the presentation. So we will try and get back to you.
Sure. And just one more clarification. I know you mentioned that you would be focusing more on margins on the India front. And so the gross margins, we're expecting to revise going forward. But I -- at the EBITDA level, are we planning to do more investments within the brand, and you might see some depression in the margins?
I think our objective is to definitely focus on margins and improving margins in the medium term from where we are. Quarter-to-quarter, you could see impact of initiatives. As I said earlier, the medium-term objective is to improve margins [ from there. ]
Okay. And just one more clarification. There is an exceptional item of INR 8 crores recorded to consolidation related with TCL. Do we see similar kind of expenses going forward also?
I mean it's difficult to say, but we don't expect a material impact from the P&L from what we know. And finally, if the scheme is approved, there could be some [ standing ] implications. But I think we don't expect a huge swing on the number.
[Operator Instructions] The next question is from the line of Viraj Kacharia from Securities Investment Management.
Just 2 more questions. One is on our depreciation. We have seen a sharp increase. So how should we see this going forward? And second is on the tax rate, both on the India business and the international.
So the depreciation increases because of the new accounting standard on lease accounting. So net, net what it has is some reduction in other expenses, increase in depreciation and an increase in interest. The overall payment impact is not material. But -- So what you're seeing is probably a onetime correction in the depreciation number, and this sort of becomes a normative level going forward to which we'll add additions and things like that.So it's really a base reflection of the standard. As far as tax rate is concerned, really, the tax rate for us is a function of -- the international tax rates are coming down, both in the U.S. and the U.K. So you will see some impact of that. And I see profitability of the international business improved, right, you see it overall with [ tax rates ] coming down.
As there are no further questions, I will now hand the conference over to the management for closing comments.
Yes. Thank you, and thanks once again to everybody for your questions and interest. And yes, overall, the first quarter has been fairly good across most of our businesses. And yes, we look forward to the TCL consumer business' consummation of that deal happening and also consolidating the Dhunseri Lal Ghoda, Kala Ghoda businesses into our India business, which has been part of our planned strategy. So till the next quarter, thank you very much. Bye.
Thank you.
Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.