Tata Global Beverages focuses on branded natural beverages — tea, coffee and water. With a long history and experience in the beverages market, and a heritage of innovation and development, the Company has evolved from a predominantly domestic Indian tea farming entity to a marketing and brand-focused global organization. Tata Global Beverages Limited is a beverage company engaged in the trading, production and distribution of tea, coffee and water. The Company's principal activities include processing and blending of tea, including manufacture of instant tea. The Company's segments include Tea, which is engaged in the cultivation, manufacture, blending and sale of tea in packet, bulk or value added forms; Coffee and Other Produce, which is engaged in the cultivation of coffee and related plantation crops, and sale of coffee in various value added forms, and Others, which includes sale of water products and other businesses. Its Tata Tea brands include Tata Tea Premium, Tata Tea Gold, Tata Tea Life, Tata Tea Agni, Tata Tea Chakra Gold, Tata Tea Kannan Devan and Tata Tea Gemini. It has branded beverage business operations mainly in India, Europe, the United States, Canada and Australia, plantation business in India/Sri Lanka and extraction business mainly in India, the United States and China.
Investment Rationale:
Huge market share in Tea segment:
TGBL is been consistently having a huge chunk of market share in tea segment. Currently
TGBL has 20% market share in branded tea segment in India. TGBL continues to retain
this market share as well as it expects it to increase in upcoming years with the
help of new product launches, and increased reach of their premium products such
as Chakra gold, Activ+, Tata gold etc. Company has now also started new initiatives
such as providing out of home tea stores named TATA Cha, it has opened till date
6 stores in Bangalore.
New product launches in branded category:
TGBL’s 90% revenues comprises from banded category. TGBL’s Tetley is
the oldest and well known tea brand globally. TGBL recently launched Tetley super
teas in Canada. Tetley super teas are fortified with vitamins and minerals. This
product was also able to gain market share of 1.6% of non black tea quickly. While
in UK TGBL’s Tetley launched cold infusion products which can be brewed with
cold water. TGBL is focused in innovations of its branded product portfolio. Tetley
continues to expand its portfolio in non black tea by launching excited products.
Source: Company, Stockaxis Research
Merger will lead to unlock synergies:
TGBL and Tata Chemicals (TCL) have entered into an agreement to merge TCL’s
consumer products business into TGBL in an all-stock transaction. Where the swap
ratio is for every one share of Tata chemicals limited, TGBL will issue 1.14 shares.
This will lead to issue 246 mn fresh issue of equity which suggests around 46% of
equity dilution. TCL’s consumer products business portfolio includes TATA
salt, blended spices, pulses, ready to eat mixed and other nutrition products. After
the merger company would be renamed as TATA consumer products limited (TCPL). This
merger will help in widening distribution reach for their consumer products.
Source: Company, Stockaxis Research
With the help of this merger it will become a major FMCG player in market. This transaction will make company more India centric. Management is expecting to launch new products and expand its product portfolio by entering into new segments. As per management now from basic products they are going to enter in value added products.
Source: Company, Stockaxis Research
Strategic JV’s, Associations and Inorganic growth:
TGBL has currently to JV’s i.e. Starbucks a 50:50 JV, & Nourishco a 50:50
JV with PepsiCo India company. While Starbucks is really doing good For FY19 its
topline grew by 30% and it added 15 new stores in same financial year. The store
count for starbucks till date stood at 146 stores. While nourishco’s top line
grew by 10%. Its product tata gluco plus got good traction and it posted double
digit growth for FY19.
TGBL is been ahead in inorganic growth. TGBL has done quite acquisitions previously and been able to run those companies efficiently. Recently TGBL had acquired Dhunseri tea & industries Limited for the amount of 101 crores. Dhunseri tea has 2 major brands i.e. Lal ghoda and Kala Ghoda tea which has 6% market share in Rajasthan. This acquisition enables TGBL to enter markets of rajasthan. As there are quite local players having large chunk of market share.
Eight o Clock (EOC) business to boost coffee business:
Tata coffee is a wholly owned subsidiary of TGBL. Tata coffee has started its Freeze-dried
coffee plant in vietnem, which will lead to boost its B2B coffee sales. In last
year it also launched two blends in it. Due to floods in kerala its domestic business
was affected in FY19. We expect that it would recover in FY20 and record higher
top line growth.
Tea Industry In India:
Indian tea is among the finest in the world owing to strong geographical indications,
heavy investments in tea processing units, continuous innovation, augmented product
mix and strategic market expansion. The main tea-growing regions are in Northeast
India (including Assam) and in north Bengal (Darjeeling district and the Dooars
region). Tea is also grown on a large scale in the Nilgiris in south India. India
is one of the world’s largest consumers of tea, with about three-fourths of
the country’s total produce consumed locally. Euromonitor estimates that the
Hot tea category (excluding Ready-to-Drink) is a ~US$44billion industry; projected
to grow at a CAGR of 5% between 2019 and 2023. Black/ Everyday Black tea forms the
largest category sub-segment globally, accounting for ~42% of sales (by value) followed
by Non-Black tea like Green, Fruit & Herbal, Rooibos, Decaf, etc. However, Non-Black
tea commands a much higher value-perserve in comparison to Black tea. The Indian
tea industry will see broad-based growth from unbranded as well as branded business,
while more consumers shift to premium products. However, Everyday Black tea category
in the developed markets will reflect a declining trend mainly due to change in
consumer preference.
Important Facts regarding tea industry:
Growth Drivers for Tea Industry:
Source: Company, IBEF, Euromonitor.
Coffee Industry In India:
In India, coffee is grown in regions that receive 2,500–4,000mm rainfall across
more than 100 days, followed by a continuous dry period of a similar duration. Coffee
growing areas in the country have diverse climatic conditions, which are suitable
for the cultivation of different varieties of coffee. Globally, with a total size
of US$85 billion, the coffee industry is much larger than the tea industry. Coffee
has been able to better leverage premiumisation and is growing faster than tea,
with a rise in out-of-home consumption at retail outlets (e.g. Starbucks and Costa)
and a greater adoption of technology to recreate café experiences at home
(e.g. Nespresso). Coffee is also the favourite beverage in most developed countries
where affordability does not constrain consumption, as compared to tea which is
the preferred beverage in developing countries. The coffee industry has lately seen
a wave of consolidation driven by leading players like Nestle and JAB, across geographies.
Important Facts regarding coffee industry:
Growth Drivers for coffee Industry:
Source: Company, IBEF, Euromonitor.
DESCRIPTION | Mar-17 | Mar-18 | Mar-19 | Mar-20 E | Mar-21 E |
---|---|---|---|---|---|
Net Sales | 6780.00 | 6815.00 | 7252.00 | 7832.00 | 8458.00 |
% Growth | 2.20% | 0.50% | 6.40% | 8.00% | 8.00% |
Raw Material Cost | 3248.00 | 3416.00 | 3726.00 | 3916.00 | 4314.00 |
% Growth | -1.50% | 5.20% | 9.10% | 5.10% | 10.20% |
Employee Cost | 835.00 | 821.00 | 806.00 | 839.00 | 872.00 |
% Growth | 3.70% | -1.60% | -1.80% | 4.00% | 4.00% |
General and Administration Expenses | 199.00 | 189.00 | 229.00 | 235.00 | 254.00 |
% Growth | -1.10% | -5.40% | 21.30% | 2.70% | 8.00% |
Selling and Distribution Expenses | 728.00 | 669.00 | 739.00 | 940.00 | 1015.00 |
% Growth | 0.90% | -8.00% | 10.50% | 27.10% | 8.00% |
Other Expenses | 978.00 | 881.00 | 965.00 | 1018.00 | 1100.00 |
Total Expenditure | 5988.00 | 5976.00 | 6466.00 | 6947.00 | 7554.00 |
EBITDA (Excl OI) | 791.00 | 839.00 | 786.00 | 884.00 | 904.00 |
Growth(%) | 20.90% | 6.00% | -6.30% | 12.50% | 2.20% |
EBITDA Margins(%) | 11.70% | 12.30% | 10.80% | 11.30% | 10.70% |
Depreciation | 126.00 | 116.00 | 123.00 | 129.00 | 135.00 |
Other Income | 83.00 | 94.00 | 157.00 | 165.00 | 173.00 |
EBIT | 748.00 | 817.00 | 820.00 | 921.00 | 942.00 |
Interest | 92.00 | 43.00 | 52.00 | 60.00 | 58.00 |
Exceptional Income / Expenses | 5.00 | -21.00 | -33.00 | 0.00 | 0.00 |
Profit Before Tax | 662.00 | 753.00 | 735.00 | 860.00 | 884.00 |
Provision for Tax | 198.00 | 186.00 | 261.00 | 301.00 | 310.00 |
Profit After Tax | 464.00 | 567.00 | 474.00 | 559.00 | 575.00 |
PATM (%) | 6.80% | 8.30% | 6.50% | 7.10% | 6.80% |
Earnings Per Share | 6.20 | 7.90 | 6.50 | 8.90 | 9.10 |
Adjusted EPS | 6.20 | 7.90 | 6.50 | 8.90 | 9.10 |
TGBL is a flagship company of TATA group; TGBL has a wide geographical reach and has a huge diversified business. We expect that merger will help in unlock synergies such as expanding distribution reach, operational efficiencies etc. Currently the stock trades at 37.8x TTM PE. We assign a TP of 295 based on 32.41x FY21E EPS.