tata global reportans.accordhostings.com/uploadresearch/634188437438563750...31 st august, 2010 ans...

31st August, 2010

ANS Research Desk (Research Wing of ANS Pvt Ltd)

“ARHAM” Financial Centre

Harihar Chowk, RAJKOT (Guj)

Speak to: 0281 – 6699401

Drop a line to: [email protected]

Tata Global Beverages Ltd.

Research By,

Bhaskar Patel

Pranav Mehta

Anand Kakkad

Nifty 5,415

Sensex 18,032

Script Details

Equity Capital ` 61.64 Cr

Face Value ` 1

Market Cap ` 7238.36

52 Weeks High/Low 124 /82.30

6-month avg. volume

(BSE) 60,955

(NSE) 164,957

Shareholding Pattern As On Mar’10 (%)

Promoters 35.38%

Corporate Bodies & 42.77%

Institutions

Public 21.75

Overview

Tata Global Beverages (TGB)UK-based James Finlay and the Tata Group for manufacturing tea and coffee. Currently Tata Tea and the UKpresence in 40 countries.

The company has portfolio of five brands in the domestic market namely Tata Tea,Tetley, Kanan Devan, Chakra Gold

It has distribution network of 38 C&F agents and 2500 stockists cateringoutlets

The company has its headquarters in Kolkata and owns 27 tea estates in states like Assam, West Bengal and Kerala.It has a 100% export unit for instant tea located in Munnar, Keralhectares of land under tea cultivation. Tata Tea produces 30 million kg of black tea annually.

Tetley offers customized products to each country ranging from black, green, fruit and herbal teas, iced readyEast, West Asia, North Africa, Poland, Russia and Kazakhstan markets.Tetley contributes to twoof the total turnover of Tata tea.

Tata Tea is also into an additional source of income to elder children.

Milestones

Tata Tea won the Mother Teresa Commendation Award for Corporate Citizenship.

It received Golden Peacock Innovative Product & Service Award.

It received NaIndustrial Safety as Runner Up by achieving the lowest frequency rate of accidents in Gr. III(B) Engineering Industries.

Future plans:

TGBmakeover to attract youthUnchai'

35%

43%

22%

PROMOTER CB & INST PUBLIC

Recomm

BSE Code

NSE Code:

Overview

Tata Global Beverages (TGB) erstwhile Tata Tea was set up in 1964based James Finlay and the Tata Group for manufacturing tea and coffee. Currently Tata Tea

and the UK-based Tetley group have the world’s second largest branded tea operations with a esence in 40 countries.

The company has portfolio of five brands in the domestic market namely Tata Tea,Tetley, Kanan Devan, Chakra Gold and Gemini.

It has distribution network of 38 C&F agents and 2500 stockists cateringoutlets. It has three subsidiaries namely Tata Tea Inc,Tata Coffee & Tata Tea (GB).

The company has its headquarters in Kolkata and owns 27 tea estates in states like Assam, West Bengal and Kerala.It has a 100% export unit for instant tea located in Munnar, Keralhectares of land under tea cultivation. Tata Tea produces 30 million kg of black tea annually.

Tetley offers customized products to each country ranging from black, green, fruit and herbal teas, iced ready-to-drink teas and an extensive range of exotic specialty tea. It caters to Australian, Middle East, West Asia, North Africa, Poland, Russia and Kazakhstan markets.Tetley contributes to twoof the total turnover of Tata tea.

Tata Tea is also into strawberry preservation business. It offers vocational rehabilitation as well as an additional source of income to elder children.

Milestones


It received Golden Peacock Innovative Product & Service Award.

It received National Safety Council, Kerala Chapter Award (2001) for outstanding performance in Industrial Safety as Runner Up by achieving the lowest frequency rate of accidents in Gr. III(B) Engineering Industries.

Future plans:

TGB according to recent media reports may diversify into food business and ismakeover to attract youth consumers through its 'jaago re' campaign , its retail initiative of 'Chai Unchai' and by launching newer products like ready-to-drink beverages.

Recommendation: Accumulate

BSE Code: 500800 Bloomberg Code: TT IN CMP: ` ` ` `

NSE Code: TATAGLOBAL Reuters Code :TTTE.BO

erstwhile Tata Tea was set up in 1964 through a joint venture with based James Finlay and the Tata Group for manufacturing tea and coffee. Currently Tata Tea

based Tetley group have the world’s second largest branded tea operations with a

The company has portfolio of five brands in the domestic market namely Tata Tea,Tetley, Kanan

It has distribution network of 38 C&F agents and 2500 stockists catering over 1.7 million retails three subsidiaries namely Tata Tea Inc,Tata Coffee & Tata Tea (GB).

The company has its headquarters in Kolkata and owns 27 tea estates in states like Assam, West Bengal and Kerala.It has a 100% export unit for instant tea located in Munnar, Kerala.It 15,900 hectares of land under tea cultivation. Tata Tea produces 30 million kg of black tea annually.

Tetley offers customized products to each country ranging from black, green, fruit and herbal teas, of exotic specialty tea. It caters to Australian, Middle

East, West Asia, North Africa, Poland, Russia and Kazakhstan markets.Tetley contributes to two-third

rs vocational rehabilitation as well as


tional Safety Council, Kerala Chapter Award (2001) for outstanding performance in Industrial Safety as Runner Up by achieving the lowest frequency rate of accidents in Gr. III(B)

ay diversify into food business and is going in for an image consumers through its 'jaago re' campaign , its retail initiative of 'Chai

drink beverages.

Source: ACE Equity

` ` ` ` 118

FINANCIAL HIGHLIGHTS

1. Net sales have increased to ` 1373 Cr by 7.7% as compared to the corresponding period

of the previous year. This reflects continuing impact of price increases and acquisitions

offset by adverse exchange rate movements and impact of phasing of promotional sales

in key markets.

2. Profit before tax has increased to `̀̀̀ 91 Cr from a loss of `̀̀̀ 35.5 Cr in the same quarter

previous year.

3. Net profit of the company stood at ` 45.56 Cr against loss of ` 19.57 Cr in the same

quarter previous year.

4. Adjusted EPS of the company is at ` 0.74 against negative EPS of ` (0.32) in the same

quarter previous year.

PROFIT & LOSS (CONSOLIDATED RESULTS)

(IN Lakhs)

Particulars 3month Jun 10 3 month Jun 09 Year End Mar 10

Net Sales 137389 127511 578295

Other Income 608 2049 3797

Total Exp. 126747 114467 520220

Op. Profit 11250 15093 61872

Interest 1154 525 2793

PBT 9142 (3554) 64098

Tax 3250 (275) 24767

Profit/Loss after Tax 5892 (3279) 39331

Share of Profit / (Loss) from

Associates

(676) (504) 3304

Minority Interest in

Consolidated Profit / (Loss)

(660) 1826 (3605)

Net Profit 4556 (1957) 39030

Adjusted EPS 0.74 (0.32) 6.31

Standalone Results

1. Operating income in India has increased by 8.3% as compared to the same quarter in the

previous year to ` 4.54 Cr from ` 4.19 Cr.

2. Whereas PAT and EPS have decreased on standalone basis as compared to the same

quarter in the previous year

PROFIT & LOSS (STANDALONE RESULTS)

(IN Lakhs)

Particulars 3month Jun 10 3 month Jun 09

Total Operating Income 454 419

Profit after Tax 36 43

Earnings per Share - Rs (not

Annualized) 0.58 0.69

Consolidated Segment Wise Revenue

1. Revenue from tea and coffee increased by 4.14% & 12.3% as compared to the same quarter

in the previous year.

2. Interest paid by the company increased from `5.25 Cr to `11.54 Cr.

3. PBT increased from a loss of ` 3554 to profit of ` 9142.

Source: Financial Highlights, Tata Global Beverages Ltd.

PROFIT & LOSS (CONSOLIDATED RESULTS)

(IN Lakhs)

Particulars 3month Jun 10 3 month Jun 09 Year End Mar 10

Segment Revenue / Other

Operating Income

a) Tea 101431 97392 441226

b) Coffee & Other Produced 34363 30599 134601

c) Others 2187 1556 6132

d) Unallocated 16 13 133

Total Operating Income 137997 129560 582092

2. Segment Results

a) Tea 9368 15645 57391

b) Coffee & Other Produced 5835 5139 23970

c) Others (312) (674) (1399)

Total 14891 20110 79962

Add/(Less)

i) Interest (Net) (1154) (525) (2793)

ii) Other Un-allocable items,

Investment Income and

Exceptional Expenditure

(4595) (23139) (13071)

Total Profit before Tax 9142 (3554) 64098


1.

2.

3.

4.

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

NET

SALES

EXPEND PAT EPS

P & L COMPARISON

2008 2009 2010 2011 (E) 2012 (E)


*Provided that no equity dilution is done and number of shares remain the same.

Net Sales have shown a CAGR of 16.8% over last 5 years. Net sales have increased at a rate of

16.8% over last 5 years. In our forecast we have assumed that the

would grow at 15%.

Other Income: To be conservative in our estimated we have estimated other income to

remain constant as previous year.

Total Expenditure: Historically total expenditure was around 82%

income. We expect total expenditure to be 85% of NS and OI.

Tax Expense: We have estimated the tax rate to be 38%

PROFIT & LOSS (CONSOLIDATED

Particulars Mar 12 E Mar 11 E Mar 10 Mar 09

Net Sales 7647.9 6650.3 5,782.95 4,847.88

Other Income 193.4 193.4 193.40 215.37

Total Exp. 6506.1 5657.49 5,099.49 4,228.50

Op. Profit 1335.2 1186.29 876.85 834.75

Depreciation 159 138.33 102.92 98.69

Interest 373.20 325.72 149.08 210.13

Tax 305.1 274.45 247.68 424.41

PAT/ Net Profit 497.83 447.79 393.31 831.89

Adjusted EPS 8.05 7.24 6.38 13.50

Div (%) 200.00 200.00 200.00 175.00

*Provided that no equity dilution is done and number of shares remain the same.

Net sales have increased at a rate of

In our forecast we have assumed that the company going forward

To be conservative in our estimated we have estimated other income to

: Historically total expenditure was around 82%-88% of net sales and other

total expenditure to be 85% of NS and OI.

CONSOLIDATED RESULTS)

(IN CRORES)

Mar 08 Mar 07

4,365.69 4,024.90

209.72 130.35

3,682.93 3,344.75

892.48 810.50

91.63 96.71

307.77 285.83

153.40 107.60

1,905.88 458.01

30.92 7.79

350.00 150.00

1.

2.

3.

0

1000

2000

3000

4000

5000

FUNDS DEBTS BV/SHR CONT. LIA

BALANCE SHEET

2007 2008 2009 2010

The company’s funds have more then doubled in last 5 years while its debts is almost the

same as in March 2006 , however during this period of 5 years the company’s debts swelled to

as high as `̀̀̀ 4577 Cr and it is `̀̀̀ 1796 Cr as on March 2010.

The book value of the company has more then doubled in last 5 years from

` 59.64.

The latest enterprise value of the company is ` 7769.76 Cr while market cap of the company is

`7275.46 Cr and reserve of the company is `3661.30 Cr.

BALANCE SHEET (CONSOLIDATE

Particulars Mar 10 Mar 09 Mar 08

Total Funds 3,723.24 3,652.89 3,480.3

Total Debts 1,796.79 2,431.07 2,609.3

Net Block 3,647.04 3,762.16 3,681.1

Cash & Bank 1,903.83 1,089.15 1,323.2

Net Current Assets 2,438.40 2,970.00 1,970.6

Contingent Liabilities 79.41 33.40 39.03

Adjusted Book Value 59.64 58.33 55.46

company’s funds have more then doubled in last 5 years while its debts is almost the

same as in March 2006 , however during this period of 5 years the company’s debts swelled to

The book value of the company has more then doubled in last 5 years from ` 26.74 to

Cr while market cap of the company is

CONSOLIDATE RESULTS)

(IN CRORES)

Mar 08 Mar 07 Mar 06

3,480.3 2,134.0 1,569.4

2,609.3 4,577.7 1,698.4

3,681.1 6,447.3 2,651.8

1,323.2 118.77 22.12

1,970.6 300.53 101.81

39.03 21.17 52.23

55.46 34.66 26.74

1.

2.

3.

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

Cash Flow

from operations from investing from financing

Cash from operating activities has been positive for all the previous years which is a good sign

showing that the company has generated positive cash from its operations.

CFI has increased on account of increase in sale of investment & decreased in inter

deposit

In spite of high cash outflow from CFF there is a net cash inflow due to high CFI. Also closing

cash and cash equivalent has substantially increased as compared to previous years.

Sources: Ace Equity, Company Annual Reports

CASH FLOW (CONSOLIDATED

Particulars Mar 10 Mar 09 Mar 08

Cash From Operations 139.61 174.18 515.96

Cash From Investments 1,490.01 485.31 2,675.97

Cash From Financing -757.35 -784.04 -2,000.36

Net Cash Inflow/Outflow 872.27 -124.56 1,191.57

Opening Cash & Cash Equity 1,089.15 1,323.2 118.77

Closing Cash & Cash Equiv. 1,903.83 1,089.1 1,323.20

Cash from operating activities has been positive for all the previous years which is a good sign

showing that the company has generated positive cash from its operations.

increased on account of increase in sale of investment & decreased in inter corporate

In spite of high cash outflow from CFF there is a net cash inflow due to high CFI. Also closing

cash and cash equivalent has substantially increased as compared to previous years.


CONSOLIDATED RESULTS)

(IN CRORES)

Mar 08 Mar 07 Mar 06

515.96 511.98 421.50

2,675.97 -3,532.54 -401.47

2,000.36 3,112.48 -59.15

1,191.57 91.92 -39.12

118.77 22.12 64.21

1,323.20 118.77 22.12

Cash Flow Ratios

Financial Ratios

RATIOS (CONSOLIDATED RESULTS)

Particulars Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

Cash Flow Per Share 22.65 28.26 83.7 87.03 75.24

Price to Cash Flow Ratio 4.33 2.07 0.98 0.7 1.15

Free Cash Flow per share 90.05 164.4 317.04 96.25 49.24

Price to Free Cash Flow 1.09 0.36 0.26 0.63 1.76

Sales to cash flow ratios 41.42 27.83 8.46 7.86 7.37

RATIOS (CONSOLIDATED RESULTS)

Particulars Mar 10 Mar 09 Mar 08 Mar 07 Mar 06

D/E Ratio 0.58 0.72 1.32 1.77 1.13

Current Ratio 3 3.55 3.1 1.49 1.32

Interest Coverage Ratio 5.3 6.98 7.69 2.98 4.73

PBIDTM (%) 15.16 17.21 20.44 20.13 19.28

PATM (%) 6.8 17.16 43.64 11.38 9.67

ROCE (%) 11.64 20.86 33.11 16.08 16.39

ROE (%) 10.82 23.72 69.84 25.9 20.44

Net Sales Growth (%) 19.29 11.04 8.47 29.56 2.14

EBIT Growth (%) -46.12 -38.05 178 60.49 18.25

PAT Growth (%) -52.72 -56.35 316.12 52.4 36.69

POSITIVES

Good Market share and strong product portfolio

TGB’s market share in the branded packed tea segment Is around 21.4%. Also Tata Tea is the

market leading brand in India. The company also has a strong product portfolio consisting of: Tata

tea, Tetley, Himalayan mineral water ,Good earth, Eight’o clock coffee , Kanan Devan , Grand.

Strong Management Team

The company has a strong management team led by Ratan Tata as chairman, R K Krishna kumar as

Vice Chairman, V Madan as Vice President while other board of directors are F K Kavarana ,U M

Rao,A R Gandhi, M Srinivasan.

MOU with Pepsi

TGB’s has entered into a Memorandum of Understanding with PepsiCo to enter into a proposed JV.

The JV will cover liquid beverages; particularly in the enhanced wellness area (excludes carbonated

soft drinks, ambient temperature tea and Pepsi's range of food categories). This would also help in

distributions of the company’s mineral water through Pepsi’s distribution channel.

Company has an ambitious growth plan

The company has an ambitious growth plans and expects to achieve revenue of $5 billion i.e.,

around `̀̀̀ 23,400 Crore by 2015 from the current revenue of `̀̀̀ 5784 Cr translating in to a CAGR

of 32.4% which is double as compared to its last 5 years CAGR of 16.8%.

Foray into food business

TGB has plans to foray into food and fortified health drinks business which would further expand its

portfolio from its existing portfolio of tea, non tea beverages and mineral water.


RISKS

Increase in commodity price & variation in climatic condition

The main concern in the branded tea business is the increase in the commodity prices and the

ability of the company to pass on the increase to its customers due to competition. Also the

company’s major product i.e., tea and coffee are plantation products and are adversely affected

due to changed in climatic condition.

New product launches

As the company plans to launch new products in the existing as well as new geographies there is a

threat that not all of these products may be successful in spite of good efforts & superior product

quality.

Forex Impact

The company operates in 40 countries and even a small change in the exchange rates may affect

the company. Thus the company is directly exposed to currency volatility and fluctuations.

TGB might not be able to meet its ambitious targets

TGB is targeting revenue of $5 billion by 2015 for which company would have to grow by 32.4%

CAGR annually. This target looks too ambitious and to make it a reality the company needs to play

all its cards right.

Foray into new geographies

As the Company expands and forays into new geographies there is a risk of not fully understanding

the environment or implementing a successful business model. In order to grow the business

beyond existing geographies and to launch new products the Company needs both to

acquire and enhance distribution. It is possible that the Company may not always be able to

acquire the distribution reach it desires especially in liquid beverages.


Recommendations

At current market price of ` 118 the company is trading at a trailing PE of 18.50. We expect FY 11

(E) EPS to be ` 7.24 and FY 12 (E) EPS to be ` 8.05. So at CMP of ` 118 TGB is trading at a one year

forward PE of 16.3 and a two year forward PE of 14.65.

Considering that TGB is expecting to grow their revenues to $5 billion by 2015 and hence should

grow by CAGR of 32.4% the company may trade at higher PE valuation going forward if this

ambitious target is achieved. However taking a conservative PE ratio of 18.5 for FY 11 and FY 12

our targets for the company comes out to be ` 134 and FY 12 target to be ` 149 on a very

conservative basis and may give an upside of 13.5% from the CMP for the current year and an

potential upside of 26.3% for FY 12 from the CMP. However we feel that this stock can be hold on

for a very longer period and certainly deserve to be a part of one’s long term portfolio.

Considering the stock is in the FMCG sector the stock might not correct much even if the broader

markets correct 5-7% from the current levels. Still we would suggest that you should accumulate in

parts and buy at most 25% of your allocation in the stock at current level and then buying in

phases.


Disclaimer: The information being provided to you is compiled from sources we believe to be reliable. ANS Pvt. Ltd cannot and does not take any

guarantees about the accuracy, reliability, validity or timeliness of the information and/or data provided/made available to you in this document.

The views are purely indicative. Neither ANSPL nor any of its associates, subsidiaries, affiliates, directors, and/or officials become liable or have any

kind of responsibility for any loss or damage that you may incur from any decisions taken by you based on our recommendations. None of the

information contained herein constitutes a solicitation from ANSPL to Buy and/or Sell securities and/or any Future, Options or Other Financial

Contracts. Clients may exercise their own caution and double check or verify the information contained in our recommendations.

tata global reportans.accordhostings.com/uploadresearch/634188437438563750...31 st august, 2010 ans...

Documents