Tata Global Beverages India Business Performed Well Viewpoint
Tata Global Beverages India business performed well Viewpoint
Tata Global Beverages posted a mixed performance in Q3FY2020 with Sector: Consumer Goods revenue growing by ~3% and operating margins (OPM) expanding by Result Update ~200BPS to 12.2%. India business revenues grew by 6% with volume growth standing at 7%, while Tata Coffee (including Vietnam) revenue Change grew by 25%. US coffee and UK segments saw a decline in the revenues View: Positive in line with a sluggish market in various regions. Raw materials prices ( for coffee and tea) remained benign resulting in strong expansion in CMP: Rs. 380 margins and aiding a 16% growth in adjusted PAT. Strategies are place to improve the growth of Eight O’ Clock and other key businesses. Upside potential: 22-24% With the integration of Tata Chemical Limited’s (TCL’s) India consumer á Upgrade No change â Downgrade business, TGBL will be one of the strongest consumer goods brands in the domestic market with a strong presence in branded tea, salt, water Company details and other staples.
Market cap: Rs. 23,983 cr Key positives India business continues to perform well with a 7% volume growth and 52-week high/low: Rs. 399/178 margin expansion of 90 bps to 13.7%. NSE volume: (No of Canada registered a 5% growth and gained market share (volume 38.3 lakh shares) market share stands at ~40%). Tata Starbucks registered 27% growth and continues to be EBIDTA BSE code: 500800 positive.
NSE code: TATAGLOBAL Key negatives US coffee business registered a decline of 3% on back of 2% volume Sharekhan code: TATAGLOBAL decline. Free float: (No of Tata GLuco Plus registered volume decline of 4% mainly on account of 41.4 cr shares) adverse weather in states of Andhra Pradesh and Odisha. Our Call Shareholding (%) Valuation - Retain Positive stance with 22-24% upside: We have broadly maintained our earnings estimates for FY2021 and FY2022. The India Promoters 34.5 business along with Canada, UK and the US, will be key focus markets for TGBL in the coming years. The integration of Tata Chemicals’ consumer FII 27.0 business with TGBL heightens sustainable revenue and PAT growth visibility owing to multiple growth levers. We expect consolidated revenue DII 14.9 and earnings to grow at a CAGR of 15.4% and 28.1% over FY2019-22. The stock is currently trading at 35x its FY2022E earnings. We maintain our Others 23.6 Positive view on the stock and expect an upside of 22-24% from the current levels. Price chart Key Risks
400 Sustained slowdown in the domestic consumption; heightened competition 350 from new players and spike in the key input prices would act as a key risk 300 to our earnings estimates in the near term. 250 200 Valuation Rs cr 150 Particulars FY18 FY19 FY20E FY21E* FY22E* 19 20 19 19 - - - - Revenue 6,815 7,252 7,594 10,296 11,140 Jun Oct Feb Feb OPM (%) 12.3 10.8 12.4 13.4 14.2 Adjusted PAT 571 479 560 865 1,035 Price performance % Y-o-Y growth 26.5 - 16.9 54.5 19.6 Adjusted EPS (Rs.) 9 7.6 8.9 9.4 11.2 (%) 1m 3m 6m 12m P/E (x) 43.5 51.7 44.3 41.9 35.0 P/B (x) 3.5 3.4 3.2 2.6 2.5 Absolute 19.1 24.2 42.6 87.6 EV/EBIDTA (x) 27.9 30.1 24.6 25 21.5 Relative to RoNW (%) 8.7 6.9 7.7 8.2 7.3 23.8 25.1 32.5 69.7 Sensex RoCE (%) 9.5 8.8 8.9 10.1 9.4 Sharekhan Research, Bloomberg Source: Company, Sharekhan estimates *FY2021E and FY2022E includes the consumer business of TCL
February 04, 2020 13 margins onexpanding focus soft, remained business International to 13.7%. bps grew ~90 by business India of the margin EBITDA commercials. television regional and backed campaigns by digits double grow high in quarter. Tata the market during share gained brands of FY2020. Tea to National continue Mix Spice and Agni at stood 8% for volume nine and business months India across growth the regional first brands. both national growth good by driven of 7% of growth 6% volume and growth avalue revenue crore, 933 of registering Rs. well: performed business India crore Q3FY2019. in crore 108.9 Q3FY2020 in Rs. from 136.4 to Rs. 25% y-o-y PAT adjusted alower rate aided and tax of associates to performance in grow by Improvement 12%by y-o-y. grow to tax before profit in resulted charges finance and depreciation Higher crore.239.6 Rs. to 22.1%y-o-y by lower commodity costs. Operating efficienciesdrove up OPM by 195 bps toOperatingprofit 12.2%. grew by driven largely 142 by to 46.2%, bps expanded margins Gross terms. currency 4% at constant in stood growth volume came consolidated growth in at 5% in Q3FY2020 and 6% in the nine first monthsFY2020. of Revenue expansion: Overall, crore, respectively. 238.5 crore Rs. and 1,733 Rs. at stood margin business unbranded and branded of the aided efficiencies Revenue and business. unbranded the in a20% and growth tea business the in growth 1.7% by driven Q3FY2019 prices input benign crore in 1,912.6 Rs. crore Q3FY2020 in against as 1,961.9 3%; to Rs. revenue grew 2.6% by y-o-y Consolidated by grew revenue Consolidated February 04,2020 Tata Result Highlights Coffee inTata growth decline volumes Good NourishCo for Starbucks, businesses: Other
improvement improvement in profitability waswitnessed ledby innovations. The companylaunched three new flavours Continued tea category. specialty market the in share 3.2% achieving to grow Canada in continue teas Super respectively. 40%, 29% and at market volume stood and share value The tea sales. black higher business: in Canada Decent growth intends to focus on margin expansion through cost optimisation. Tetley whereas company The UK terms. the in volume market and value in share gained headwinds faced some tea green category The grocery channel. in decline by offset channel discounted in growth flat, almost was revenue business UK respectively. 23%, and 17% at standing share market volume and value with market gains, share However, reported business 1%. by UK the declining volumes crore, with flat: revenue stood business UK intensity. competitive to due increased to face headwinds continued Coffee EOC US. the in e-commerce in Ayurveda Earth Good launched company The US. the in segment coffee bags in decline some was there but Q3, grow volumes in saw segments coffee labels private and K-cups EOC 2%. by declining volumes with business: US in the performance Muted tonnes for fifth quarter straight, standing at 2,052at standing tonnes. straight, quarter fifth for tonnes metric over at in came 2,000 volumes business coffee instant Domestic of 14%. growth volume and sales business. pouch low-price the scaling hence, de- and is mix product better to on focus expects company The 4%. by declined pouch) TWP (excluding growth volume Overall expansion. distribution by grew driven 3% by PET Water (TWP) Plus city, a new added and highway Nasik Mumbai on store Vadodara) total to count store 174 the taking cities. 11 across stores new (one FY2020 of months nine first the in stores 28 FY2020. in new Starbucks opened company The positive EBITDA remain will and FY2019 in broken has even Starbucks sales. and engagement customer to drive continues that program loyalty and range. supers the in Tata Coffee’s revenue (including Vietnam) grew by 25% y-o-y to Rs. 210 crore, driven by good Vietnam Vietnam good crore, by driven 210 to Rs. Tata grew 25% by Vietnam) Coffee’s revenue y-o-y (including Tata terms. volume and value in 5% at Q3FY2020 in both growing stood Himalayan for Revenue growth media asocial on focus Tata for strong Q3FY2020 by in 27% driven Revenue at growth stood Starbucks
The domestic brandedThe domestic tea business) business well (India earning performed The UK, Canada and other businesses declined by 4% y-o-y to Rs. 529 to Rs. 4% by y-o-y declined businesses other and Canada UK, The The Canada business recorded a 5% revenue growth, driven by by driven recorded a 5% revenue business growth, Canada The The US coffee business declined by 3% y-o-y to Rs. 290 crore, 290 to Rs. y-o-y 3% by declined business coffee US The 14
Viewpoint of 13.7% and with the integration of TCL’s to medium near in integration bps the with and of 13.7% 80-100 by could rise it business, consumer (OPM) margin operating an clocks currently business India The years. coming the in revenue TGBL for driver akey be will and FY2019 TGBL’s in upto 61% market. go 48% from will domestic contribution business India the in water and salt tea, branded as such categories presence in strong with players goods consumer of TCL’s integration the Post leading of the one be formalities. will requisite TGBL of the business, consumer completion the post Tribunal Law 2020.Company 8, effective (NCLT) become January on will scheme The Kolkata National of the by the bench sanctioned been has scheme the as Q4FY2020 completed by to be expected is and of TCL’s track merger on is Q1FY2020. in merger The itself into business products consumer ofTata consumer ofthe business Merger (TCL) completed by Q4: to be Chemicals February 04,2020 a5% over revenue FY2016-19. CAGR against as years two next the in revenue business’ to grow India 8-9% by help would reach distribution expanded and portfolio Moreover,product enhanced an efficiencies. operating and TCL’sby portfolio led term, product high-margin
8-10% volume growth from the coffee side of the business of Tata business of the side coffee Coffee. the from growth volume 8-10% vines. of pepper up. picks demand the as soon as down to settle expected is which improvement, for headroom some have prices Robusta and January on as variety’s Arabica The settled have vagaries. prices climatic by affected crop was the as volatile optimisation. cost and innovation through O’ Coffee Clock Eight in decline the arresting on is Focus brand. the under planned of new launches a pipeline has company the accepted and well been have brand the under new launches The control. cost tight and lower spends ad FY2022. by utilisation full FY2021 and by to to up ramp ~80-90% expects company the and tonnes ~4,500 at stands Average utilisation utilisation. ~60-70% at operating currently is crore. capacity The due to earned local sourcing. quarter the during advantages aresult of cost as were healthy quarter. Margins the during positive EBITDA/EBIT turned and realisations. Tata Coffee is the sole supplier of Arabica beans to Tata Starbucks India and Starbucks accounts for for to accounts Tata beans Starbucks of Arabica and Tata India sole supplier Starbucks the is Coffee capacity. tonne a350 has currently and roastery its expanded recently has company The expansion the to in invest expects accordingly crop and pepper in improvement an expects company The were prices pepper whereas quarter the during volatile been have prices coffee Robusta and Arabica The Eight O’ Clock clocked flat volumesand turnover a inmargins andexpansion significant but reported 300-400 of Rs. revenue potential afull with tonnes of 5,000 atotal capacity has facility Vietnam The sales recorded robust (Q1FY20) 2019 June from operational became which Vietnam, in new facility The lower by offset partly credit, a one-time and volumes to due higher largely 14.5%, at stood margin EBITDA
TGBL had announced the the announced had TGBL 15
Viewpoint February 04,2020 Source: Company;SharekhanResearch OPM (%) GPM (%) Source: Company;SharekhanResearch Consolidated business Tata Coffee UK, Canada&Others India business Adjusted EPS(Rs.) Adjusted PAT Profit Before Tax Operating profit Total Revenue Particulars Result (Standalone) US Coffee Particulars Performance ofkeybusinesses Source: Company;SharekhanResearch OPM (%) GPM (%) Adjusted EPS(Rs.) Reported PAT Extra-ordinary items Adjusted PAT afterMI Other income associates Minority Interest(MI)/Profitfrom Adjusted PAT beforeMI Tax Profit Before Tax Depreciation Interest &otherfinancialcost Operating profit Total operatingcost Employee cost Raw materialcost Other expenses Advertising Total Revenue Particulars Results (Consolidated)
Q3FY20 Q3FY20 1056.3 1722.3 1961.9 932.5 209.0 239.6 128.4 135.9 136.4 127.2 285.1 197.2 141.0 171.9 56.2 26.0 46.2 49.2 13.8 95.1 12.2 19.2 -0.6 -4.6 41.1 2.2 1.5
Q3FY20 1962 290 529 933 210 Q3FY19 Q3FY19 1056.9 1912.6 1716.4 889.7 124.4 108.9 108.9 196.2 155.2 205.1 176.2 299.1 114.0 121.3 -12.4 39.3 54.9 22.6 29.6 89.7 12.8 44.7 10.3 13.0 0.0 1.4 1.9
Y-o-Y (%) Y-o-Y (%) 65.9 BPS 25.3 24.8 48.4 BPS 12.6 16.2 16.2 10.8 14.9 22.1 182 -4.7 195 6.0 6.0 11.9 142 2.3 4.8 2.6 2.3 -0.1 0.3 96 1.9 Q3FY19 - - 25% -2% -3% 3% 6% Q2FY20 Q2FY20 1599.4 1010.3 253.5 1834.1 234.7 135.3 152.5 153.5 199.0 144.2 123.7 101.2 136.7 914.1 193.1 25.3 46.8 48.8 44.9 13.5 12.8 39.1 20.1 -1.0 9.2 2.3 1.6
Q-o-Q (%) Q-o-Q (%) Y-o-Y (%) Rs cr Rs cr -10.9 BPS 25.8 BPS 204 -6.0 12.5 -2.2 -2.2 -4.2 14% -4% 2.0 -6.1 -6.1 124 3.8 -58 -11.1 15.1 5.0 5.0 2.6 -1% 5% 4.6 24 7% 7.0 7.7 2.1 2.1 16 - -
Viewpoint current levels. of 22-24% upside an expect and stock the on view the from Positive We our FY2022E maintain earnings. 35x its at trading currently is stock The 28.1% of and 15.4% to over aCAGR grow at FY2019-22. earnings revenue and consolidated We levers. expect revenue growth PAT and to multiple owing visibility growth sustainable heightens of TGBL Tata with integration The business consumer years. coming Chemicals’ the in key TGBL for be markets focus will US, the and UK Canada, with along business FY2022. India and The Retain 22-24% Positive stance with upside: Valuation staples. other and water salt, tea, branded presence in astrong market with domestic the in brands goods consumer strongest of the one be will TGBL business, and aefficiencies better revenue mix. theWith ofintegration Tata Limited’s(TCL’s)Chemicals India consumer of back the on be will expansion hence OPM FY2021 and in higher to prices be input expects company The FY2021. in revenue growth better have will business base Thus to FY2021. in revive expected is performance the thus and pods) under new products (launched business O’ coffee Clock of Eight prospects growth the to improve steps taken has adequate company The revenue growth. digit mid-single to FY2020 end with TGBL we expect Canada, in growth digit mid-single Tata in and business (standalone) growth digit Coffee to grow inFY2020: Earnings indouble digit Outlook February 04,2020 Source: SharekhanResearch One-year forwardP/E(x)band Source: Company,Sharekhan estimates Tata GlobalBeverages Nestle India Britannia Industries Particulars Peer Comparison 100.0 150.0 200.0 250.0 300.0 350.0 400.0 450.0 500.0 550.0 50.0 0.0
Mar-14
Aug-14
Dec-14
Apr-15 FY19 96.2 67.2 51.7 Sep-15 P/E (x) FY20E 54.0 44.3 Jan-16 81.1
Jun-16 FY2021 for estimates earnings our maintained We broadly have With high-single digit growth in India business, strong double double strong business, India in growth digit high-single With FY21E 66.0 42.0 46.4 Oct-16
Feb-17 FY19 58.8 45.0 30.1
EV/EBIDTA (x) Jul-17 FY20E 55.4 40.9 24.3 Nov-17
Apr-18 FY21E 25.0 46.2 35.7 Aug-18 FY19 42.8 70.3 Dec-18 8.8
RoCE (%) May-19 FY20E 38.0 67.1 9.0 Sep-19 FY21E
Feb-20 30x 35x 40x 45x 67.9 37.4 10.1 17
Viewpoint Top shareholders 10 Key management personnel Data Additional February 04,2020 key input prices would act as a key risk to our earnings estimates in the near term near the in estimates akey as to earnings our risk act would key prices input spike and the in new players from competition heightened consumption; domestic the in slowdown Sustained Key Risks over a5% FY2016-19. CAGR against as years two next the in revenue to growbusiness 8-9% by India help would reach distribution expanded and portfolio product enhanced An network. distribution its business. Along with margin expansion, innovation tea growing consistently to the addition in India in and businesses spices and pulses diversification, branded the for drivers the merger will help TGBL to expand key as revenue act would retail large stores/e-commerce as such channels modern through consumption in increase and of brands awareness income, increasing capita per Rising company. revenue the for driver akey to become of TCL’s expected is integration business the India the After TGBL, with business consumer theme Investment Starbucks named Tata Corporation Starbucks Private Limited well. which is performing venture 50:50 with joint another has Tata Tataas also (TGP), TGBL Plus Gluco Himalayan. Water and Plus for namedIndia NourishCo such marketing beverage of branded and distribution products non-carbonate PepsiCo venture with ajoint has It subsidiaries. various through Africa and Asia South Canada, US, UK, as such geographies international presence in avery vast has TGBL currently. 48% from to ~60% increase will which of contribution the of TCL’s merger the business, announced India its to expand TGBL with business consumer Tataas Tea, has company the Recently, (mineral brand). water Tetley, Himalayan and O’ coffee Clock Eight such of brands portfolio a strong with world the in tea player branded world’s the is second-largest TGBL company About N. Chandrasekaran Source: Bloomberg 10 9 8 7 6 5 4 3 2 1 Sr. No. Source: CompanyWebsite Neelabja Chakrabarty John Jacob Sunil D’Souza Sharekhan Limited,itsanalystordependant(s)ofthemight beholdingorhavingapositioninthecompaniesmentionedarticle. Stewart InvGLEmerging MRT Mitsubishi UFJ FinancialGroupInc Baron EmergingMarketsFund Dimensional FundAdvisorsLP Norges Bank Government Pension Fund -Global FMR LLC Reliance CapitalTrustee CoLtd Mirae AssetGlobalInvestmentsCo First State InvestmentsICVC Holder Name
Company Secretary Chief FinancialOfficer Managing Director&CEO Chairman Holding (%) 2.2 2.2 2.0 9.2 3.2 3.3 1.8 1.6 1.6 1.6 18
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