Jolly good show; Buy
Key takeaways
Growth momentum sustained. In FY13 Tata Global Beverages (TGB)
reported creditable, 11%, growth in consolidated revenues to `73.5bn, in line
with our estimates. This was largely driven by volume and value growth in
India, where the company’s domestic revenues rose 14% yoy. We estimate
that crucial price hikes effected across international markets in its tea
portfolio (largely Tetley) helped it register 9% growth in international
revenue. Additionally, its coffee operations via its subsidiary Tata Coffee
(TC), also did exceedingly well, reporting a 10% jump in revenue.
In tough operating environment EBIDTA margin up. The consolidated
OPM rose 110bps yoy to 10.5% following the strong performance in India as
well as an encouraging performance in international markets such as Australia.
At `7.7bn, EBIDTA jumped 23% yoy in FY13, due to stringent cost control
and tight inventory management. However, PAT was constrained at `3.7bn,
(up 5% yoy) on account of higher short-term borrowing costs and an
exceptional expense for restructuring international operations. Adjusted PAT
stood at `4bn, a 20% yoy growth.
Our take. Across all parameters results paralleled our estimates. We are
heartened by the value growth following price hikes in the tea portfolio, as
well as stabilised coffee operations after last year’s untoward correction in
prices of Arabica. Despite the backdrop of a recessionary environment in
mature international markets, we believe the company will successfully effect
growth through strategic price increases and volume push while
simultaneously extracting efficiencies from its operational set-up.
We maintain our FY14e and FY15e estimates as well as our price target of
`168, which represents a 17% upside from the ruling price. Risk: Inability to
manage raw material prices and SG&A expenses.
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Key takeaways
Growth momentum sustained. In FY13 Tata Global Beverages (TGB)
reported creditable, 11%, growth in consolidated revenues to `73.5bn, in line
with our estimates. This was largely driven by volume and value growth in
India, where the company’s domestic revenues rose 14% yoy. We estimate
that crucial price hikes effected across international markets in its tea
portfolio (largely Tetley) helped it register 9% growth in international
revenue. Additionally, its coffee operations via its subsidiary Tata Coffee
(TC), also did exceedingly well, reporting a 10% jump in revenue.
In tough operating environment EBIDTA margin up. The consolidated
OPM rose 110bps yoy to 10.5% following the strong performance in India as
well as an encouraging performance in international markets such as Australia.
At `7.7bn, EBIDTA jumped 23% yoy in FY13, due to stringent cost control
and tight inventory management. However, PAT was constrained at `3.7bn,
(up 5% yoy) on account of higher short-term borrowing costs and an
exceptional expense for restructuring international operations. Adjusted PAT
stood at `4bn, a 20% yoy growth.
Our take. Across all parameters results paralleled our estimates. We are
heartened by the value growth following price hikes in the tea portfolio, as
well as stabilised coffee operations after last year’s untoward correction in
prices of Arabica. Despite the backdrop of a recessionary environment in
mature international markets, we believe the company will successfully effect
growth through strategic price increases and volume push while
simultaneously extracting efficiencies from its operational set-up.
We maintain our FY14e and FY15e estimates as well as our price target of
`168, which represents a 17% upside from the ruling price. Risk: Inability to
manage raw material prices and SG&A expenses.
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