Buy Tata Global Beverages - Fairwealth Institutional Research

Tata Global Beverages Limited, through its subsidiaries, joint ventures and associates, is a global beverages company engaged in the trading, production and distribution of tea, coffee, water and other beverage products. The Company operates in India, Europe, the United States, Canada and Australia. During the fiscal year ended March 31, 2012 (fiscal 2012), the Company incorporated Tata Starbucks Limited which opened its first store in Mumbai in Sep, 2012.

Investment Thesis:

- Tata Global is the premier brand in India as well as worldwide and maintains its position among the top brands in India, Australia, UK, US and South Asia. Company is one of the biggest tea manufacturer in the markets it operates. These regions have high potential for beverage market due to high populations and strong demand for tea among the people.

- Strategic partnerships and acquisitions across the globe have rendered TGBL a distinct advantage over its peers. TGBL ensures a huge market potential for itself after finalizing partnerships with companies such as Pepsico, Starbucksand and recently acquired Russian firm Suntyco Holding. In Joint Venture with Starbucks, the company has opened its first store in Mumbai in the month of September 2012 and management is hopeful of opening 100 stores in near term.

- Going ahead, TGBL should see an improvement in margins as it plans to concentrate on branded products business while reducing its dependancy on low margin plantation business. Company's focus to cut operational cost and to optimise operations will further enhance the margins.

- Q2FY13 Results: Second quarter results for TGBL reflects a strong performance in margins with net profit growing 54% YoY to Rs 119cr from Rs 77cr last year. Net sales grew 7.5% to Rs 1843cr from Rs 1715cr an year back. Tax outgo went down to Rs 31cr Vs Rs 49cr. Key markets had good performance and coffee business performed exceedingly well in India, US and Russia. Rupee depreciation was also a key factor in robust performance of the company.

Valuation: With great potential of beverage market in densely populated Indian subcontinent, consumption profile always experience uptrend. Strong presence in subcontinental countries ensures exorbitant revenue generation for atleast the next few years. TGBL's strategic partnerships with global players will help establish the business in key markets around the world. Venture with Starbucks in India and Suntryco Holdings in Russia, a high tea consuming nation, will boost the sales in the coming quarters. At CMP of Rs 158, TGBL is trading at EPS of Rs 4.56. Considering the recent partnerships we expect EPS to reach Rs 6, implying a target price of Rs 210. We recommend "BUY" on the stock.

Source : Equity Bulls

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