Tata Global Beverage - CMP Rs.161 - 2012 Diwali Pick - Aditya Birla Money

Business undergoing transformation: For TGBL, overseas business contributes 70% and the company is getting its business model right there, which is clearly visible from turnaround in the Eight O Clock (EOC) coffee business and improvement in performance of tea business in UK, Russia, Poland and Russia. The company is now targeting the pulse of the consumer with key initiatives like tie up of Tetley brand with Kraft in Canada (to supply tea discs), tie up of EOC with Green Mountain, a leader in specialty coffee and single serve brewing systems in North America. Within the domestic business, the company is transforming from a branded tea business to developing a comprehensive beverage portfolio with presence also in health based non-carbonated beverages.

Future growth drivers:

Starbucks JV: The company has recently opened 3 Starbucks coffee store in Mumbai. This JV can be a big earning booster for the company in the long term.

Growth in tea business: The company continues to retain its volume and value leadership in branded tea segment in India with 19.9% and 21.5% market share respectively. Among new initiatives, Tetley brand has entered into an agreement with Kraft in Canada to make Tetley discs available for Kraft's single serve brewing machines.

Coffee business:. TGBL is the parent company of Tata Coffee Ltd (holds 57.5% stake). The coffee plantation business is performing well for Tata Coffee with firm robusta coffee prices. On the other hand, softening in prices of Arabica coffee is helping the operations of Eight O Clock coffee, wherein EOC has reported profit of $7.5 mn in 2QFY13 as compared to loss of $ 0.7mn in 2QFY12.

Nourishco - the Pepsi JV: The company has already launched its two products - Tata Water Plus (fortified mineral water) and Tata Gluco Plus (glucose based water) in states of TN and AP. “Himalayan”, a premium natural purifier bottled water, is already launched pan India and the company is planning to push the same globally through the Starbucks network. Water portfolio can be scaled up significantly and this is likely to drive the earnings going forward.

At CMP, the stock is trading at P/E of 22.3x and 19.7x FY13E and FY14E consensus earnings respectively. On P/B, the stock is trading 2.0x and 1.9x FY13E and FY14E consensus book value respectively. We recommend investors to buy the stock.

Source : Equity Bulls

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