Golden Midcap Portfolio Investment Rationale

Golden Midcap Portfolio We are happy to launch yet another research-backed basket of stocks, the Golden Midcap Portfolio. View these stocks and their story below: Tata Global Abbott India Trent Ltd Bata India Berger Paints Beverages Investment Rationale 1. Tata Global Beverages Tata Global (TGBL) is market leader in branded tea market by volume and second- largest in terms of value in India’s Rs. 300 bn tea market, which is 50% organized. The company has a strong portfolio of brands including Tata Tea, Tetley, Eight O’Clock Coffee and Good Earth It also has Joint Ventures with Starbucks to operate cafes in India and with Pepsico to produce ready-to-drink (RTD) beverages TGBL merger with Tata Chemicals’ consumer business would perk up company’s margins as TCL’s consumer business EBIT margin of 17% is higher than TGBL’s 9% (as on FY19) Led by new launches and shift from unorganized to organized market, we expect 5.5% revenue CAGR in FY19-21E aided by high growth in branded tea products With addition of Tata Salt and pulses in the portfolio, contribution of high growing India business sales would increase from 45% to 55% 2. Abbott India Abbott India (Abbott) is a leading MNC in the domestic pharma market that owns a manufacturing site in Goa and over 30 third party manufacturers Abbott in India develops and distributes over 600 products for healthcare professionals that promote health and well-being for Indians in all stages of life The company operates mainly in the gastro-intestinal, vitamins & minerals, CNS, gynecological and hormones domain It is a debt-free company and has seen its core RoEs improving from 42.6% in FY14 (adjusted to 12 months) to 116.3% in FY19 Revenues are expected to grow ~13% CAGR over FY19-22 mainly on the back of 18% growth in power brands which account for ~50% of total revenues Net profit expected to grow ~23% over FY19-22 mainly due to strong growth in power brands and benefits flowing from new tax amendment 3. Trent Ltd Trent is one of the leading players in the branded retail industry in India. The company primarily operates stores across four formats namely Westside, Zudio, Star and Landmark Trent’s flagship store format ‘Westside’ primarily focuses on selling private label brands; share of private label brands has improved significantly from 80% in FY13 to 97% in FY19 leading to industry best gross margins (~58%) Westside has presence with 155 stores across more than 70 cities and online reach across India with exclusive listing through Tata CLiQ. The management has chalked out aggressive store expansion plans for FY20E and is planning to open ~40 additional Westside stores in FY20E. Trent has a presence in value fashion business under ‘Zudio’ brand which has also seen exceptional ramp up with the company adding 33 stores in FY19 taking total store count to 40 stores The recent capital infusion (Rs. 950 crore) by promoters (Tata Sons) is likely to act as a key catalyst for healthy revenue growth. 4. Bata India Bata is the world’s leading shoemaker by volume, designing stylish and comfortable footwear at surprisingly affordable prices Bata India is a major player in the Indian footwear market with a presence across men’s, women’s and kid’s footwear segment with price points ranging from the mass market to the premium category It has a strong bouquet of brands with a strong brand recall led by flagship brand ‘Bata’ and premium brand ‘Hush Puppies’ and has a pan-India presence with the largest network of retail stores in the footwear industry with ~1420 stores Bata expects to improvement in operating margin aided by premiumisation of product portfolio which currently stands at 50% of FY19 revenues. Average realizations improved ~17% to Rs. 620/pair in FY17-19, with gross margins improving significantly by 290 bps to 56% in FY17-19 In a bid to enhance the market share in smaller towns, the management intends to open ~ 500 franchise stores in the next five years. Asset light expansion model is expected to further enhance return ratios going forward. 5. Berger Paints Berger is the second largest decorative paint company in India with overall market share of ~16%. Company derives ~80% of revenue from decorative paints and the rest from industrial paints Further, it has second largest distribution network of ~15000 dealers network across India of which ~60% are located in East and North India Berger possesses strong brands like Berger Silk, Berger Rangoli, Berger Weather Coat etc In the last five years company has generated average Cash Flow from Operations of Rs.450 crore and most of its capex funded through internal accruals. Despite this, Berger has a strong dividend payout ratio of ~35% The Indian paint industry may grow at CAGR of 12% supported by low penetration level of paints and lower re-painting cycles. Berger paint being second largest player likely to outpace the industry growth rate supported by dealer additions and expansion in new geographies Paints demand gains from a rising rural income and given the good monsoon the festive season demand post harvest is likely to be exceptionally good. .

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