Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Global Beverages (TGBL)
Consumer products
International business outperforms. 3QFY11 – domestic sales growth of 5%, with
EBITDA margin decline of 500 bps due to higher material cost. Relatively better
performance in the international operations (specifically EOC) helped limit the
consolidated EBITDA margin decline to 100 bps. Potential triggers are (1) transfer of
‘Himalayan’ to TGB-Pepsi JV, (2) restructuring of Tata Coffee as a focused plantations
company and (3) media reports regarding stake sale in Tetley to private equity.
International business does well – EOC margins surprise positively
On a standalone basis, Tata Global Beverages (TGB) reported net sales of Rs4, 713 mn (+5%, KIE
estimate Rs4, 693 mn), EBITDA of Rs222 mn (-49%, KIE estimate Rs395 mn) and PAT of Rs473 mn
(+24%, KIE estimate Rs410 mn).
Sales growth of 5% was likely led by pricing growth while volumes would have declined, in our
view. Gross margin was down 435 bps to 37.7% and EBITDA margin was down almost 500
bps primarily driven by higher material cost. However, led by higher other income (+134%),
PAT margin improved 153 bps to 10%.
On a consolidated basis, net sales grew 4% to Rs16 bn, EBITDA declined 5% to Rs1.8 bn and
PAT declined 23% to Rs799 mn. In comparison to the standalone results, gross margin decline
in consolidated results was limited to 88 bps largely due to likely higher price increases in nonblack
tea portfolio and in coffee (as evidenced by higher segmental margins in coffee)
compensating for inflation in black tea and likely mix improvement. On segmental basis, tea
sales were almost flat and coffee sales were up 12% (likely price increases in EOC and Grand).
Tea margins were down 147 bps and coffee margins were up 345 bps.
In our view, coffee sales were driven by the Eight O Clock Coffee (EOC) business. On constant
currency terms, sales were up 17% partially on the back of a low base and PAT margin
improved 500 bps to 13%. EOC performance is commendable given that Arabica coffee prices
were up 40% during the quarter.
Tetley sales were almost flat in Rupee terms, in our view. >80% of the UK tea market is black
tea and this market has been declining.
Performance of Mount Everest Mineral Water was disappointing – sales grew just 10% and loss
increased to Rs47 mn in 3QFY11 from Rs30 mn in 3QFY10.
Retain ADD on cheap valuations
While the results are clearly disappointing, we retain ADD as we still believe that company is
taking the right corporate actions to address growth issues with most of its businesses.
Cheap valuations provide buffer as well (stock trades at 0.8XFY2012E sales in comparison
with sector multiple of 3.4X).
Potential transfer of ‘Himalayan’ mineral water to TGB-Pepsi JV and scaling up of the
water business. Media reports suggest that this JV would be headed by Pepsi
representative, implying commitment to the venture. Industry sources indicate that the JV
is considering an entry into mass-market packaged drinking water as well.
Potential restructuring of Tata Coffee as a focused plantations company could have
implications for holdings in Eight O Clock coffee.
Media reports regarding stake sale in Tetley to private equity players. This could
significantly help Tetley in increasing the salience of non-black tea in their portfolio (ability
of the private equity player to bring in niche players to work with Tetley could potentially
be higher).
Likely joint venture with Kerala Ayurveda Ltd focusing on development of food and
beverages based on Ayurvedic formulations for the global market.
Potential recent stake purchase in ‘Activate’ make up for the missed ‘Glaceau’
opportunity?
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Global Beverages (TGBL)
Consumer products
International business outperforms. 3QFY11 – domestic sales growth of 5%, with
EBITDA margin decline of 500 bps due to higher material cost. Relatively better
performance in the international operations (specifically EOC) helped limit the
consolidated EBITDA margin decline to 100 bps. Potential triggers are (1) transfer of
‘Himalayan’ to TGB-Pepsi JV, (2) restructuring of Tata Coffee as a focused plantations
company and (3) media reports regarding stake sale in Tetley to private equity.
International business does well – EOC margins surprise positively
On a standalone basis, Tata Global Beverages (TGB) reported net sales of Rs4, 713 mn (+5%, KIE
estimate Rs4, 693 mn), EBITDA of Rs222 mn (-49%, KIE estimate Rs395 mn) and PAT of Rs473 mn
(+24%, KIE estimate Rs410 mn).
Sales growth of 5% was likely led by pricing growth while volumes would have declined, in our
view. Gross margin was down 435 bps to 37.7% and EBITDA margin was down almost 500
bps primarily driven by higher material cost. However, led by higher other income (+134%),
PAT margin improved 153 bps to 10%.
On a consolidated basis, net sales grew 4% to Rs16 bn, EBITDA declined 5% to Rs1.8 bn and
PAT declined 23% to Rs799 mn. In comparison to the standalone results, gross margin decline
in consolidated results was limited to 88 bps largely due to likely higher price increases in nonblack
tea portfolio and in coffee (as evidenced by higher segmental margins in coffee)
compensating for inflation in black tea and likely mix improvement. On segmental basis, tea
sales were almost flat and coffee sales were up 12% (likely price increases in EOC and Grand).
Tea margins were down 147 bps and coffee margins were up 345 bps.
In our view, coffee sales were driven by the Eight O Clock Coffee (EOC) business. On constant
currency terms, sales were up 17% partially on the back of a low base and PAT margin
improved 500 bps to 13%. EOC performance is commendable given that Arabica coffee prices
were up 40% during the quarter.
Tetley sales were almost flat in Rupee terms, in our view. >80% of the UK tea market is black
tea and this market has been declining.
Performance of Mount Everest Mineral Water was disappointing – sales grew just 10% and loss
increased to Rs47 mn in 3QFY11 from Rs30 mn in 3QFY10.
Retain ADD on cheap valuations
While the results are clearly disappointing, we retain ADD as we still believe that company is
taking the right corporate actions to address growth issues with most of its businesses.
Cheap valuations provide buffer as well (stock trades at 0.8XFY2012E sales in comparison
with sector multiple of 3.4X).
Potential transfer of ‘Himalayan’ mineral water to TGB-Pepsi JV and scaling up of the
water business. Media reports suggest that this JV would be headed by Pepsi
representative, implying commitment to the venture. Industry sources indicate that the JV
is considering an entry into mass-market packaged drinking water as well.
Potential restructuring of Tata Coffee as a focused plantations company could have
implications for holdings in Eight O Clock coffee.
Media reports regarding stake sale in Tetley to private equity players. This could
significantly help Tetley in increasing the salience of non-black tea in their portfolio (ability
of the private equity player to bring in niche players to work with Tetley could potentially
be higher).
Likely joint venture with Kerala Ayurveda Ltd focusing on development of food and
beverages based on Ayurvedic formulations for the global market.
Potential recent stake purchase in ‘Activate’ make up for the missed ‘Glaceau’
opportunity?
No comments:
Post a Comment