Tata Global Beverages - War Horse - Sumpoorna

Tata Global Beverages Ltd. ("Tata Global Beverage" or "The Company"), is an integrated beverage business that has successfully evolved from a predominantly domestic Indian tea farming company to become a marketing and brand focused global organization with a portfolio of strong brands. Tata Global Beverages now employs around 3,000 people with a significant presence in over 40 countries worldwide. The company is engaged in processing, marketing and distribution of tea products. They operate in the United Kingdom and have significant businesses in the United States, Canada, Australia, Poland and the Czech Republic, as well as a number of joint ventures in South Africa, Pakistan and Bangladesh.

Investment Rationale:

The Company along with its subsidiaries has a net cash position and capacity to take on leverage. This strong financial position will enable financing of both organic and inorganic opportunities. The increasing awareness on the health advantages of tea, especially green tea, is emerging as a significant demand driver. Tata Global Beverages, with its global presence and strong brands is well-positioned to grow by launching new products, backed by sound research and an innovative product portfolio.

The joint venture of NourishCo Beverages with PepsiCo Inc, already operational, there is an attractive potential to grow the market presence in nutrient water and energy drink categories, which were successfully launched by NourishCo. Tata Starbucks, the joint venture with Starbucks International (international coffee Brand), provides exciting opportunities to collaborate in other areas, including the ability to partner in the area of consumer packaged goods to be sold and distributed through grocery channels in India. The Indian market is transforming towards premiumisation. The Indian consumer is moving up the value chain from loose to packet tea and also from mid-priced to premium teas, providing robust opportunities at both ends of the market.

Tata Global beverages topline grew by 10 percent in FY12, facilitated by an improved performance in key markets. Consolidated PAT increased by 48 percent in FY12 due to improved operational performance, lower interest outgo, and effective tax rate. The company's share is quoting at a "Price/ Book value" (P/BV) of about 3.66 times and "Market Cap/ Sales" of 4.04 times.

JV's and strategic alliance to provide stimulus to the company to gain from the healthy domestic & global consumption demand going forward; thus, we strongly recommend a 'BUY' for the company's stock.

Source : Equity Bulls

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