Buy Tata Global Beverages; target of Rs 450: ICICI Direct
ICICI Direct’s research report on Tata Global Beverages
Tata Global Beverages (TGBL) received National Company Law Tribunal (NCLT) approval for merger with Tata Chemicals’ (TCL) consumer business. This business includes sourcing, packaging, marketing, distribution & sales of its Tata Salt, pulses & spices under Sampann brand, snacks business and detergent powder, Tata Dx. TCL’s consumer business has been growing at a strong ~20% growth over the last two years backed by robust growth in volumes across salt, pulses and spices. It has been maintaining its operating margins around 16%, much higher than TGBL’s ~13% (as on H1FY20). Though pulses and spices segments are smaller in size, we believe these underpenetrated and high growth categories would aid TGBL’s growth. We believe investment behind new categories (Tata Dx detergent powder and Tata Nx sugar-free natural sweetener) including other newer segments, would be the key to growth, going ahead.
TGBL’s India business revenue contribution has increased from the previous 47% in FY19 to ~52% in H1FY20 with impressive EBITDA margins of 13.5%. The company has been exiting non-core international markets (exit from loss making China, Russia and Czech Republic subsidiaries and stake divested in its Sri Lankan plantations), which has been a drag on sales growth. We have valued TGBL on an SOTP basis, valuing the India domestic business (including TCL’s consumer business) at 5x FY22E sales, international business (US, UK, Canada) at ~1x FY22E sales and Starbucks JV at 2x FY22E sales. We reiterate our BUY rating on the stock with a revised target price of Rs 450 per share.
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