Tata Global Beverages - Jolly good show; Buy - Anand Rathi

Key takeaways

Growth momentum sustained. In FY13 Tata Global Beverages (TGB) reported creditable, 11%, growth in consolidated revenues to Rs. 73.5bn, in line with our estimates. This was largely driven by volume and value growth in India, where the company's domestic revenues rose 14% yoy. We estimate that crucial price hikes effected across international markets in its tea portfolio (largely Tetley) helped it register 9% growth in international revenue. Additionally, its coffee operations via its subsidiary Tata Coffee (TC), also did exceedingly well, reporting a 10% jump in revenue.

In tough operating environment EBIDTA margin up. The consolidated OPM rose 110bps yoy to 10.5% following the strong performance in India as well as an encouraging performance in international markets such as Australia. At Rs. 7.7bn, EBIDTA jumped 23% yoy in FY13, due to stringent cost control and tight inventory management. However, PAT was constrained at Rs. 3.7bn, (up 5% yoy) on account of higher short-term borrowing costs and an exceptional expense for restructuring international operations. Adjusted PAT stood at Rs. 4bn, a 20% yoy growth.

Our take. Across all parameters results paralleled our estimates. We are heartened by the value growth following price hikes in the tea portfolio, as well as stabilised coffee operations after last year's untoward correction in prices of Arabica. Despite the backdrop of a recessionary environment in mature international markets, we believe the company will successfully effect growth through strategic price increases and volume push while simultaneously extracting efficiencies from its operational set-up.

We maintain our FY14e and FY15e estimates as well as our price target of Rs. 168, which represents a 17% upside from the ruling price. Risk: Inability to manage raw material prices and SG&A expenses.

Source : Equity Bulls

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