Tata Global Beverages - Angel Backoffice

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Jan 31, 2014 ... For 3QFY2014 Tata Global Beverages (TGBL) posted a 49% yoy growth in its bottom-line to `120cr, aided by tax credit of `46cr arising out of ...
3QFY2014 Result Update | FMCG January 31, 2014

Tata Global Beverages

NEUTRAL

Performance Highlights

CMP Target Price

Quarterly results - Consolidated (` cr) Y/E March Revenue EBITDA

Reported PAT

Investment Period

3QFY14

3QFY13

% yoy

2QFY14

% qoq

2,054

1,902

8.0

1,906

7.7

169

190

(10.7)

131

29.7

8.2

10.0

(172)bp

6.9

140bp

120

80

49.0

180

(33.6)

OPM (%)

`141 -

Source: Company, Angel Research

-

Stock Info Sector

FMCG

Market Cap (` cr)

8,698

Net Debt (` cr)

498

Beta

0.9

52 Week High / Low

170/122

For 3QFY2014 Tata Global Beverages (TGBL) posted a 49% yoy growth in its

Avg. Daily Volume

356,245

bottom-line to `120cr, aided by tax credit of `46cr arising out of stake sale in

Face Value (`)

a US based beverage company. We maintain our Neutral view on the stock.

BSE Sensex

Key highlights: For 3QFY2014 TGBL’s performance was below estimates. The

company posted an 8% yoy growth in its top-line to `2,054cr aided by good performance in some key markets and favorable foreign exchange translation impact. Its tea business posted a top-line growth of 11.1% yoy, while the coffee business posted a growth of 2% yoy. The OPM came in below estimates and stood at 8.2% (vs our estimate of 9.5%). During the quarter, the company’s profitability was affected by higher investment behind brands and new initiatives. While the tea business posted a 16.6% yoy growth in its profits, the coffee business posted a 47% yoy de-growth in profits. TGBL’s adjusted PAT was down 6% yoy and stood at `87cr. Outlook and valuation: We expect TGBL to post a CAGR of 8.9% and 11.4% in its top-line and bottom-line respectively, over FY2013-15E. At the current market price, the stock is trading at 17.4x FY2015E earnings. We maintain our Neutral

1 20,498

Nifty

6,074

Reuters Code

TGBL.BO

Bloomberg Code

TGBL@IN

Shareholding Pattern (%) Promoters

35.1

MF / Banks / Indian Fls

15.3

FII / NRIs / OCBs

23.0

Indian Public / Others

26.7

Abs. (%) Sensex TGBL

3m

1yr

3yr

(2.5)

2.5

11.4

(2.3)

40.7

(14.7)

view on the stock.

Key Financials (Consolidated) Y/E March (` cr)

FY2012

FY2013

FY2014E

FY2015E

6,585

7,270

7,761

8,615

% chg

10.1

10.4

6.7

11.0

Net Profit

333

402

442

499

% chg

36.0

20.7

10.1

12.8

EBITDA (%)

8.8

9.5

9.1

9.5

EPS (`)

5.4

6.5

7.2

8.1

P/E (x)

26.1

21.7

19.7

17.4

1.9

1.8

1.7

1.6

Net Sales

P/BV (x) RoE (%)

7.9

7.8

10.8

9.1

RoCE (%)

7.1

8.1

7.9

8.8

EV/Sales (x)

1.3

1.2

1.0

0.9

14.5

12.8

11.8

10.0

EV/EBITDA (x)

Source: Company, Angel Research: Note: CMP as of January 30, 2014

Please refer to important disclosures at the end of this report

V Srinivasan 022-39357800 [email protected]

1

TGBL | 3QFY2014 Result Update

Exhibit 1: Quarterly performance (Consolidated) Y/E March (` cr) Net Sales

3QFY14

3QFY13

% chg (yoy)

2QFY14

% chg (qoq)

9MFY2014

9MFY2013

% chg

2,054

1,902

8.0

1,906

7.7

5,756

5,458

5.5

3.6

2.3

Consumption of RM

964

930

(% of Sales)

46.9

48.9

Staff Costs

205

188

(% of Sales)

10.0

9.9

Other Expenses

715

595

(% of Sales)

9.5

944

2.1

2,795

2,732

49.5

(5.2)

48.5

50.1

201

2.3

593

538

10.5

(5.0)

10.3

9.9

20.3

631

13.3

1,879

1,686

10.2 11.4

34.8

31.3

33.1

5.2

32.6

30.9

Total Expenditure

1,884

1,712

10.1

1,776

6.1

5,266

4,956

6.3

Operating Profit

169.4

189.7

(10.7)

130.6

29.7

490

501

(2.3)

OPM

8.2

10.0

(172)bp

6.9

140bp

8.5

9.2

(67)bp

27.8

23.8

16.6

18.1

53.3

66

56

18.4

Depreciation & Amortisation

32

25

30.8

31

2.4

92

75

23.8

Other Income

42

31

35.6

60

(29.8)

137

114

20.2

Recurring PBT

151

172

(12.1)

141

7.6

468

485

(3.4)

100.5

(28.4)

(13.7)

233

(40.7)

569

456

12.2

(44.9)

9.9

8.4

72

(84.2)

145

136

Interest

Extraordinary Income/(Exp.)

(13)

(12)

PBT after Extra-ordinary items

138

160

92

(% of Sales)

6.7

8.4

Provision for Taxation

11

67

(% of PBT)

8.3

41.9

31.0

25.6

29.9

Minority Interest

19.0

18.0

(15.4)

18.6

53.2

Profit/( Loss) from Associates

11.8

5.3

4.1

6.7

10.5

Reported PAT

120

80

180

411

277

(83.0)

24.6 6.8

Source: Company, Angel Research

Exhibit 2: 3QFY2014 Actual vs Angel estimates (` cr)

Actual

Angel Est

% Diff

Revenue

2,054

2,057

(0.1)

8.2

9.5

(120)bp

120

101

18.7

OPM (%) Reported PAT Source: Company, Angel Research

January 31, 2014

2

TGBL | 3QFY2014 Result Update

Top-line growth at 8% yoy For 3QFY2014, the company posted an 8% yoy growth in its top-line to `2,054cr aided by good performance in some key markets and favorable foreign exchange translation impact. The tea business posted a top-line growth of 11.1% yoy, while the coffee business posted a growth of 2% yoy. During the quarter, TGBL launched a slew of green tea related offerings in various countries. The company launched Tetley 100% steamed green teas in Canada in three variants, namely - pure, lemon and ginger. In the USA, the company launched Tetley Black and Green Tea which offer the full flavor of black and green tea in one cup. In India too the company has recently begun its marketing and advertising campaign for Tetley green tea. Tata Starbucks the JV between TGBL and Starbucks opened its first store in Bangalore during 3QFY2014. In all, the JV has a total of 34 stores in India.

Exhibit 3: Top-line performance 2,200

20.0 18.0 16.0

2,000

14.0 (%)

10.0 8.0 1,843

1,902

1,811

1,796

1,906

2,054

6.0 1,715

1,600

1,724

(` cr)

12.0 1,800

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4.0 2.0 0.0

1,400 Top-line (LHS)

yoy growth (RHS)

Source: Company, Angel Research

OPM down 172bp yoy TGBL’s gross margin rose by 198bp yoy in 3QFY2014 to 53.1%. Its OPM came in below estimates and stood at 8.3% (vs our estimate of 9.5%). During the quarter, the company’s profitability was affected by higher investment behind brands and new initiatives. While the tea business posted a 16.6% yoy growth in profits, the coffee business posted a 47% yoy de-growth in profits. The reported PAT rose by 49% yoy to `120cr, aided by a tax credit of `46cr arising out of stake sale in a US based beverage company. However, the adjusted PAT was down 6% yoy and stood at `87cr.

January 31, 2014

3

TGBL | 3QFY2014 Result Update

Exhibit 4: Segmental performance Y/E March (` cr)

3QFY14

3QFY13

%chg yoy

2QFY14

%chg qoq

9MFY14

9MFY13

% chg

1,573

1,416

11.1

491

482

2.0

1,370

14.8

4,261

3,961

7.6

540

(9.0)

1500

1487

0.8

16

14

19.1

23

(30.7)

67

53

26.3

Sales Tea Coffee and Other Produce Others Unallocated Net Income from operations

0

0

(12.5)

3

(97.7)

0

0

(69.7)

2,081

1,911

8.9

1,936

7.5

5,828

5,501

5.9

194

108

79.1

122

59.4

462

409

13.0

38

84

(55.1)

60

(37.1)

182

218

(16.4)

EBIT Tea Coffee and Other Produce Others Total

(9)

(9)

0.0

(6)

0.0

(29)

(29)

0.0

223

184

21.2

176

26.8

615

597

3.0

12.3

7.7

8.9

10.8

10.3

7.7

17.5

11.1

12.1

14.6

(57.6)

(65.7)

(27.2)

(42.5)

(54.4)

EBIT (%) Tea Coffee and Other Produce Others Source: Company, Angel Research

Exhibit 5: OPM performance 12 10

10

10

9.9

8

10.2

10.6

8.2

7.8

(%)

6.9 6 4 2 0 4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

Source: Company, Angel Research

January 31, 2014

4

TGBL | 3QFY2014 Result Update

Investment rationale 

Growth opportunity: TGBL holds a strong growth potential with increasing consumption of healthy beverages in India and globally. Acquisitions and strategic partnerships with global beverage giants like PepsiCo and Starbucks offer a huge market potential for TGBL, as it can develop and market products in local as well as global markets. Tata Starbucks the JV between TGBL and Starbucks currently has 34 stores in the country. Through its JV with Pepsico, TGBL has also entered the water business. It has launched two brands - Tata Gluco Plus and Tata Water Plus - in select cities in India.



Focus on branded products to lead to healthy margins: TGBL has shifted its focus from plantation activities to branded beverages. In the long run this is expected to lead to rationalization in TGBL’s operating cost structure, thus leading to healthy operating margins for it. While TGBL’s focus on volume growth remains intact, selective price increases and stable ad spends will further aid in margin improvement.

Outlook and valuation We expect TGBL to post a CAGR of 8.9% and 11.4% in its top-line and bottom-line respectively over FY2013-15E. At the current market price, the stock is trading at 17.4x FY2015E earnings. We maintain our Neutral view on the stock.

Exhibit 6: One-year forward PE 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14

-

Source: Bloomberg, Angel Research; Note: Blue line represents 5-yr average

January 31, 2014

5

TGBL | 3QFY2014 Result Update

Exhibit 7: Peer valuation Company

Reco

Market

CMP

TP

Upside

Cap

(`)

(`)

(%)

FY14E

P/E (x) FY15E

FY14E

EV/Sales (x) FY15E

FY14E

RoE (%) FY15E

Sales

CAGR# PAT

479

-

-

36.8

30.5

3.6

3.0

33.4

32.5

15.6

16.2 43.2

Asian Paints

Neutral

45,907

Britannia

Acc

10,376

868

945

9

25.8

21.7

1.5

1.3

51.5

43.4

14.8

Colgate

Neutral

17,638

1,297

-

-

34.8

29.8

4.7

4.1

94.9

92.9

16.2

9.0

Dabur India

Neutral

29,587

170

-

-

32.0

27.0

4.2

3.6

39.0

36.8

15.0

19.5

Godrej Con

Neutral

24,320

715

-

-

31.0

25.2

3.3

2.8

23.1

23.7

19.3

16.4

GSK Con

Neutral

17,784

4,229

-

-

35.2

28.2

4.4

3.7

33.8

34.3

17.6

21.9

HUL

Neutral

123,360

570

-

-

33.7

31.4

4.3

3.8

109.8

83.7

10.6

11.0

ITC

Buy

256,453

325

382

18

29.1

25.2

7.2

6.2

35.8

34.0

14.0

17.2

Marico

Buy

13,672

212

254

20

30.5

24.6

2.8

2.4

20.6

21.1

9.5

23.7

Nestle

Neutral

47,755

4,953

-

-

41.6

33.8

5.1

4.3

55.0

50.2

12.9

13.3

TGBL

Neutral

8,698

141

-

-

19.7

17.4

1.0

0.9

10.8

9.1

8.9

11.4

Source: Angel Research; # CAGR over FY2013-15E

Company background TGBL has a strong portfolio of global and regional brands such as Tata Tea, Tetley, Eight O’Clock Coffee, Good Earth, Jemca, Grand Vitax and Himalayan. During the past decade, TGBL has made acquisitions in various countries in the tea, coffee, water and other beverages categories. Tea constitutes more than 70% of the company’s total turnover, coffee accounts for ~26%, and the rest is accounted by other activities. About 65% of the company’s sales are from outside India, ie from countries such as the US, UK, Czech Republic and Poland.

January 31, 2014

6

TGBL | 3QFY2014 Result Update

Profit & Loss Statement (Consolidated) Y/E March (` cr) Total operating income % chg

FY10

FY11

FY12

FY13

FY14E

FY15E

5,783

5,982

6,585

7,270

7,761

8,615

19.3

3.4

10.1

10.4

6.7

11.0

Total Expenditure

5,269

5,395

6,009

6,582

7,055

7,801

Cost of Materials

2,310

2,928

3,323

3,567

3,780

4,238

Advertising Exp

1,317

1,013

1,100

1,221

1,397

1,221

611

615

675

740

784

861

Others

1,031

840

911

1,054

1,094

1,480

EBITDA

514

587

576

688

706

814

(17.7)

14.4

(1.9)

19.4

2.6

15.3

8.9

9.8

8.8

9.5

9.1

9.5

103

99

96

105

122

135

Personnel

% chg (% of Net Sales) Depreciation& Amortisation EBIT

411

488

480

583

585

679

(21.9)

18.8

(1.6)

21.4

0.3

16.2

7.1

8.2

7.3

8.0

7.5

7.9

Interest & other Charges

149

121

70

84

90

83

Other Income

379

118

140

167

178

184

(% of PBT)

59.2

24.3

25.5

25.0

26.5

23.6

-

-

-

-

-

-

Recurring PBT

641

485

550

666

673

780

% chg

20.7

(24.3)

13.5

21.0

1.1

15.8

8

10

23

(28)

114

-

PBT (reported)

649

494

573

638

787

780

Tax

248

202

142

164

168

214

(% of PBT)

38.6

41.7

25.7

24.6

25.0

27.5

PAT (Adjusted)

393

283

409

502

505

565

33

20

(15)

(28)

10

15

% chg (% of Net Sales)

Share in profit of Associates

Prior Period & Extr. Exp./(Inc.)

Add: Share of earnings of asso. Less: Minority interest (MI) Adj. PAT after MI (reported) % chg Reported PAT

36

58

61

72

73

81

390

245

333

402

442

499

-

(37)

36

21

10

13

399

254

355

373

556

499

(% of Net Sales)

6.9

4.3

5.4

5.1

7.2

5.8

Basic EPS (`)

6.3

4.0

5.4

6.5

7.2

8.1

Fully Diluted EPS (`)

6.3

4.0

5.4

6.5

7.2

8.1

% chg

0.0

(37.4)

35.7

20.7

10.1

12.8

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

January 31, 2014

7

TGBL | 3QFY2014 Result Update

Balance Sheet (Consolidated) Y/E March (` cr)

FY10

FY11

FY12

FY13

FY14E

FY15E

SOURCES OF FUNDS Equity Share Capital

62

62

62

62

62

62

Preference Capital

-

-

-

-

-

-

Reserves& Surplus

3,662

3,895

4,504

4,748

5,124

5,466

Shareholders’ Funds

3,723

3,957

4,566

4,810

5,186

5,527

Minority Interest

1,057

1,108

1,066

814

814

814

Total Loans

1,797

1,041

916

1,325

1,225

1,125

75

64

66

54

66

66

88

174

174

174

174

Deferred Tax Liability Long term Provisions Other long term liablities Total Liabilities

164

156

156

156

156

6,652

6,423

6,943

7,333

7,620

7,862

APPLICATION OF FUNDS Gross Block

1,470

1,538

1,731

1,867

2,026

2,249

Less: Acc. Depreciation

752

842

956

1,031

1,152

1,287

Net Block

718

697

775

836

874

962

47

44

49

91

51

56

2,929

3,062

3,469

3,598

3,598

3,598

519

591

600

578

745

769

91

86

86

86

86

Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets

3,998

3,280

3,300

3,605

3,840

4,081

Cash

1,904

997

736

698

942

950

653

717

820

876

915

915

Other

1,441

1,565

1,744

2,031

1,983

2,216

Current liabilities

1,560

1,342

1,336

1,461

1,573

1,690

Net Current Assets

2,438

1,938

1,964

2,144

2,267

2,391

-

-

-

-

-

-

6,652

6,423

6,943

7,333

7,620

7,862

Loans & Advances

Mis. Exp. not written off Total Assets

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

January 31, 2014

8

TGBL | 3QFY2014 Result Update

Cash Flow Statement (Consolidated) Y/E March (` cr)

FY10

FY11

FY12

FY13

FY14E

FY15E

Profit before tax

641

485

550

666

673

780

Depreciation

103

99

96

105

122

135

Change in Working Capital

42

(284)

(69)

(236)

37

(234)

Interest / Dividend (Net)

91

45

2

(4)

1

(0)

Direct taxes paid Others

248

202

142

164

168

214

(326)

(125)

(232)

(39)

(38)

(38)

Cash Flow from Operations

303

18

205

328

627

427

(Inc.)/ Dec. in Fixed Assets

(89)

(85)

(198)

(178)

(119)

(228)

(Inc.)/ Dec. in Investments

1,472

5

(10)

22

(167)

(24)

Cash Flow from Investing

1,384

(81)

(208)

(155)

(286)

(253)

-

(63)

0.1

(0)

-

-

Issue of Equity Inc./(Dec.) in loans

(634)

(591)

(134)

410

(100)

(100)

Dividend Paid (Incl. Tax)

146

145

123

119

119

119

Interest / Dividend (Net)

91

45

2

(4)

1

(0)

(871)

(845)

(259)

295

(220)

(219)

815

(907)

(261)

468

121

(44)

Opening Cash balances

1,089

1,904

997

736

698

942

Closing Cash balances

1,904

997

736

698

942

950

Cash Flow from Financing Inc./(Dec.) in Cash

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

January 31, 2014

9

TGBL | 3QFY2014 Result Update

Key Ratios Y/E March

FY10

FY11

FY12

FY13

FY14E

FY15E

P/E (on FDEPS)

22.2

35.5

26.1

21.7

19.7

17.4

P/CEPS

17.3

24.5

19.3

18.2

12.8

13.7

P/BV

2.4

2.2

1.9

1.8

1.7

1.6

Dividend yield (%)

1.4

1.4

1.5

1.5

1.5

1.5

EV/Sales

1.4

1.4

1.3

1.2

1.0

0.9

15.7

14.0

14.5

12.8

11.8

10.0

1.2

1.3

1.2

1.2

1.1

1.1

EPS (Basic)

6.3

4.0

5.4

6.5

7.2

8.1

EPS (fully diluted)

6.3

4.0

5.4

6.5

7.2

8.1

Cash EPS

8.1

5.7

7.3

7.7

11.0

10.2

DPS

2.0

2.0

2.1

2.2

2.2

2.2

59.6

63.4

73.1

77.1

83.1

88.7

6.2

7.7

7.1

8.1

7.9

8.8

Valuation Ratio (x)

EV/EBITDA EV / Total Assets Per Share Data (`)

Book Value Returns (%) RoCE Angel ROIC (Pre-tax)

-

-

-

-

-

-

10.8

6.5

7.9

7.8

10.8

9.1

Asset Turnover (Gross Block)

4.1

4.0

3.9

4.0

3.9

3.9

Inventory / Sales (days)

53

61

62

64

63

59

Receivables (days)

31

33

34

34

35

35

Payables (days)

83

74

59

55

56

55

WC cycle (ex-cash) (days)

76

45

60

67

65

59

RoE Turnover ratios (x)

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

January 31, 2014

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TGBL | 3QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock

Tata Global Beverages No

2. Angel and its Group companies ownership of the stock

No

3. Angel and its Group companies' Directors ownership of the stock

No

4. Broking relationship with company covered

No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

January 31, 2014

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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