Institutional

Equity
Research

FMCG | India

Tata Global Beverages (TGBL)

4QF14 result review

Current price (30 May)
Target price
Upside/(downside)
Earning estimate

Market data
Mkt capitalisation
Average daily vol
52-week H/L
Shares O/S
Free float
Promotor holding
Foreign holding
Face value

SELL
Rs
Rs
%

149
127
(15)
Revised

Rs bn
'000
Rs
mn
mn
%
%
Rs

92.2
5799.6
170.2 / 128
618.4
401.3
35.1
21.6
1.0

Price performance (%)

Nifty (abs)
Stock (abs)
Relative to Index

May 30, 2014

TGBL IN; TAGL.BO

1m
3.5
(0.2)
(3.7)

3m
15.3
6.7
(8.6)

6m
16.6
0.1
(16.4)

1yr
14.9
0.7
(14.1)

Performance

180
20
(%)
(Rs)

160
10

140
0

120

100
(10)
May-13 Aug-13 Nov-13 Feb-14 May-14
TGB (LHS)
Rel. to BSEFMCG (RHS)

Source: Bloomberg, SSLe

EOCs performance slips further

Quick highlights: TGBL reported yet another quarter of disappointing results as
growth came under severe pressure. Top line was at Rs19bn, 3.8% below SSLe due
to fall of 12% YoY in EOC. Growth was also moderate due to the favourable currency
impact of INR depreciation being already in the base quarter. EBITDA was at
Rs1.9bn, down 15% YoY and 17% below SSLe due to steep rise in coffee prices (up
by 60% QoQ). Ad-spends continued to remain high (up 165bps YoY) due to high
competition in the US and the UK. The company had to re-launch several products
and give promotional offers to remain competitive. Net profit, at Rs693mn, was down
28% YoY (46% below SSLe) while adjusted net profit, at Rs748mn, was down 21%
YoY and 39% below SSLe due to higher tax rate. There was an extraordinary
expense of Rs117mn due to restructuring and product development costs.
Growth in Indian tea business tapers off as price hikes come into base: Net
sales for the Indian tea business rose 9% YoY to Rs6.3bn led by both good volume
growth and marginal price increase. However, the growth tapered off as the price
increases taken by the company in Dec12 had got into the base. We believe that the
trajectory of growth will be around 10% YoY in F14e-16e period.
Performance of EOC slips further in 4QF14: Eight O Clock (EOC) declined by
27%/12% in US$/INR terms showing further slippages in volume compared to last
quarter. For F14, net sales of EOC have declined by 19% to US$170mn due to a
structural shift in coffee drinking market in USA from coffee bags to single-serve
pods. We believe that the slide will be difficult to contain in the near future. However,
the company is striving to expand in the pods market (which now constitutes 25% of
coffee market in USA) in certain geographies. TGBL recently acquired Bronski
Eleven, a coffee manufacturer and foods services company in Australia, which sells
coffee under the MAP brand including coffee pods. Details about the size of the
company and the deal were undisclosed owing to competitive reasons.
Growth concerns remain; maintain SELL with TP of Rs127: We believe that the
Indian tea business (34% of sales) continues to remain the only growth driver for the
company, while the instant coffee business (7% of sales) will see ramp-up in F15e,
resulting in an uptick of 20% in volumes in F15e16e. Tailwinds to earnings in terms
of INR depreciation and benign tea/coffee prices have come into base leading to cuts
in our earnings estimates. TGBL is likely to post 10%/12%/13% CAGR in
sales/EBITDA/net profit during F14eF16e. At CMP of Rs149, the stock is trading
at 18.3x 1-yr fwd P/E multiple, in line with 3-yr average historic valuations. We
value the stock at 16.5x at 8% discount to its 3-yr average to account for belowpar business growth potential and high competitive pressures. We maintain our
SELL rating on the stock with a target price of Rs127 (earlier Rs130).
Financial Summary
Y/E March (Rs mn)
Sales (mn)

F14

F 15e

F 16e

77,376

85,098

93,692

10

11

10

10

EBITDA margin (%)

9.4

10.5

9.7

10.1

10.1

3,560

3,727

4,807

4,550

5,038

5.5

5.9

6.3

7.4

8.1

44.8

19.0

-7.5

8.1

10.5

EPS (Rs) - Core

Growth(%)

F 13
73,510

Growth(%)
Net Profit (mn)

Sagarika Mukherjee
+91 22 4227 3386
sagarika.mukherjee@sbicapsec.com

F 12
66,312

P/E (x)

27.2

25.1

23.5

20.3

18.3

EV/EBITDA(x)

15.6

12.8

13.1

11.5

10.4

Dividend yield (%)

1.4

1.4

1.5

1.3

1.4

ROCE(%)

9.4

10.7

8.9

9.1

9.7

ROE(%)

7.8

7.7

8.2

7.4

7.8

Source: Company, SSLe

SBICAP
Research on Bloomberg SBICAP <GO>, www.securities.com

Please refer to our disclaimer given at the last page.

Tata Global Beverages: EOCs performance slips further

SBICAP Securities Ltd

Consolidated Financials
Y/E March (Rs mn)

4Q/F14

4Q/F13 YoY (%) 3Q/F14 QoQ (%) 4Q/F14e Var. (%)

Net Sales

19,099

18,495

8,829

8,346

COGS
Employee Expenses
Ad-spends

1,952
3,475

3.3

20,807

(8.2)

2,023

8,754

2,054

3,060

2,200

4,007

3,500

Other expenses

2,937

2,833

EBITDA

1,907

2,233

(14.6)

1,963

(2.9)

2,291

EBITDA Margin(%)

10.0

12.1

(209.2)

9.4

55.0

11.5

(6.1)

1,941

Depreciation
EBIT
EBIT Margin(%)

3,146

366

305

1,540

1,929

(20.1)

1,641

8.1

10.4

(236.3)

9.4

3,100

322
(136.9)

202

285

278

300

162

160

150

180

1,500

(16.9)

1,804

(117)

1,513

455

390

278

114

28

15

PAT

993

1,531

Min int/ Associates

(300)

(573)

Net Profit

693

NPM(%)
Adj Net Profit

(35.2)

1,267

958

(27.6)

3.6

5.2

748

946

EPS Reported

EPS (Adj)

1,821
0

Tax Rate(%)

Adj PAT margin(%)

(0.8)

(132)

Tax

(20.7)

9.8

Other income
Extraordinary items

(16.8)

350

Interest costs
PBT

(3.8)

19,845

9,638

(17.7)

25
(21.6)

1,366

1,196

(42.0)

1,286

(154.9)

5.7

(211.7)

6.5

(20.9)

890

(16.0)

1,220

(71)

(27.3)

(80)

(27.6)

(20.9)

(46.1)
(38.7)

Source: Company, SSLe

Estimates tweaked downwards due to poor performance and outlook: We have

fine-tuned estimates to align with the moderation in tea prices this year and the spike
in coffee prices in last 3 months. We have increased the ad-spends taking into
account the highly competitive and mature beverages industry in USA and UK.

Change in estimates
Revised
(Rs mn)
Net sales
Gross margin(%)
Ad-spends (% of sales)
EBITDA
EBITDA margin (%)
Adj. PAT
Rep EPS (Rs)

Old

Change (%)

F15e

F16e

F15e

F16e

F15e

F16e

85,098

93,692

84,748

93,342

0.4

0.4

52.8

53.3

53.0

53.0

(22) bps

28 bps
27 bps

18.1

18.6

17.9

18.4

27 bps

8,562

9,464

8,910

9,759

(3.9)

(3.0)

10.1

10.1

10.5

10.5

(45) bps

(35) bps

4,939

5,459

5,519

6,032

(10.5)

(9.5)

7.4

8.1

7.1

7.8

3.6

4.5

Source: SSLe

Assumptions
Net sales growth (%)
Gross margin(%)

F14e

F15e

5.3

10.0

F16e
10.1

52.5

52.8

53.3

Ad-spends (% of sales)

18.1

18.1

18.6

EBITDA growth(%)

(2.2)

13.9

10.5

9.7

10.1

10.1

EBITDA margin (%)

Source: SSLe

sagarika.mukherjee@sbicapsec.com

May 30, 2014 | 2

10
50

0
0

20
(Rs)

1-yr Fwd Rolling P/E

40
200

30
150

P/E(x)
Average

sagarika.mukherjee@sbicapsec.com
1-Std
(-) 1 Std

Apr-04
Oct-04
Apr-05
Oct-05
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14

Apr-04
Oct-04
Apr-05
Oct-05
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Nov-10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14

(x)

Tata Global Beverages: EOCs performance slips further

SBICAP Securities Ltd

1-yr Fwd P/E Band

100

Price (Rs)
5x
12x
8x
18x
20x
22x

Source: Bloomberg, SSLe

May 30, 2014 | 3

Tata Global Beverages: EOCs performance slips further

SBICAP Securities Ltd

Financials
Income Statement
Y/E Mar (Rsmn)
Net sales
growth (%)
Operating expenses
EBITDA

Balance Sheet
F12

F13

F14e

F15e

66,312

73,510

77,376

85,098

10.4

10.9

60,082

65,825

69,858

5.3

76,535

10.0

6,229

7,684

7,518

8,562

F16e Y/E Mar (Rsmn)

93,692 Cash & Bank balances
10.1

Other Current assets

84,228 Investments

2.4

23.4

(2.2)

13.9

10.5

Depreciation &amortisation

961

1,051

1,291

1,423

1,592 Goodwill & intangible assets

5,268

6,633

6,228

7,139

7,873 Other non-current assets

945

860

818

733

844

865

1,190

1,219

7,070

6,683

7,387 Borrowings

Other income
Interest paid
Extraordinary/Exceptional items
PBT
Tax

704
225

(282)

5,735

6,368

Net fixed assets

733 Total assets

Current liabilities

1,417

1,772

1,845

1,744

1,927

Effective tax rate (%)

24.7

25.8

26.1

26.1

26.1

Net profit

4,318

4,727

5,225

4,939

5,459

758

1,000

419

389

3,560

3,727

4,807

4,550

5,038 Reserves & surplus

5,038 Minority interest

Minority interest / Share of associa

Reported Net profit

Other non-current liabilities

Total liabilities

421 Share capital

Non-recurring items

(170)

(49)

Adjusted Net profit

3,391

3,678

3,917

4,550

36.3

8.5

6.5

16.2

10.7

F12

F13

F14e

F15e

F16e Y/E Mar (Rsmn)

growth (%)

Shareholders' funds

Key Financials ratios

Y/E Mar

F13

F14e

F15e

F16e

6,977

7,253

8,043

8,752

26,500

29,932

32,642

36,115

39,374

5,999

5,779

6,110

6,110

6,110

9,464

growth (%)
EBIT

F12
7,362

Total equity & liabilities

8,347

9,289

10,534

11,627

12,550

34,687

35,981

41,882

41,811

41,740

82,894

87,958

99,114 103,706 108,525

13,740

18,034

13,919

15,205

16,391

12,180

13,124

17,004

17,281

17,585

658

550

463

485

485

26,578

31,707

31,385

32,970

34,461

618

618

618

618

618

45,039

47,483

57,870

60,876

64,205

45,657

48,101

58,488

61,495

64,824

10,659

8,139

9,241

9,241

9,241

82,894

87,947

PBT
Depreciation

F12

F13

5,735

6,368

961

1,051

EBITDAM

9.4

10.5

9.7

10.1

10.1

EBITM

7.9

9.0

8.0

8.4

8.4

Chg in working capital

NPM

5.4

5.1

6.2

5.3

5.4

Total tax paid

(1,456)

(1,772)

RoE

7.8

7.7

8.2

7.4

7.8

Other operating activities

(1,490)

(342)

RoCE

8.1

9.6

8.1

8.3

8.8

Operating CF

2,764

6,166

RoIC

9.4

10.7

8.9

9.1

9.7
(1,164)

(3,381)

Capital expenditure
Per share data (Rs)
O/s shares (mn)

618

618

618

618

618

Chg in investments

5.5

5.9

6.3

7.4

8.1

Other investing activities

FDEPS

5.5

5.9

6.3

7.4

8.1

Investing CF

CEPS

10.1

12.4

12.2

13.9

15.3

BV

73.8

77.8

94.6

99.4

104.8

2.2

2.2

2.3

1.9

2.1

Valuation ratios (x)

P/BV
EV/EBITDA
EV/Sales

(987)

861

F14e
7,070

F15e
6,683

F16e
7,387

1,291

1,423

1,592

(6,824)

(2,188)

(2,072)

(1,845)

(1,744)

(1,927)

2,054

457

486

1,746

4,630

5,465

(8,426)

(2,444)

(2,444)

(Inc)/Dec in goodwill

EPS (Adj)

P/E

99,114 103,706 108,525

Cash Flow Statement

Profitability and return ratios (%)

DPS

693

27.2

25.1

23.5

20.3

18.3

2.0

1.9

1.6

1.5

1.4

15.6

12.8

13.1

11.5

10.4

1.5

1.3

1.3

1.2

1.0

FCF

(808)

453

(361)

1,059

312

(1,971)

(2,928)

(8,788)

(1,385)

(2,132)

1,600

2,785

(6,680)

2,186

3,021

Equity raised/(repaid)
Debt raised/(repaid)

(1,900)

1,286

3,845

Dividend (incl. tax)

(1,705)

(1,545)

(1,631)

(1,544)

(1,709)

Other financing activities

277

304

(715)

(3,364)

5,103

(1,190)

(1,219)

Financing CF

(4,320)

(3,623)

7,317

(2,456)

(2,625)

Net chg in cash & bank bal.

(3,528)

(385)

276

790

708

7,362

6,977

7,253

8,043

8,752

Closing cash & bank bal

Other key ratios
D/E (x)

0.3

0.3

0.3

0.3

0.3

DSO (days)

40

40

33

33

33

5.4

Du Pont Analysis - RoE

NPM (%)

5.4

5.1

6.2

5.3

Equity Multiplier (x)

1.5

1.4

1.4

1.4

1.4

Asset Multiplier (x)

1.0

1.1

0.9

1.0

1.0

RoE (%)
Source: Company, SSLe

7.8

7.7

8.2

7.4

7.8

sagarika.mukherjee@sbicapsec.com

May 30, 2014 | 4

Tata Global Beverages: EOCs performance slips further

SBICAP Securities Ltd

Recommendation History
BUY
200

HOLD

Stock Price

Date

SELL
Target Price

(Rs)

170

140

Stock Price

TP

Rec.

18-Jun-13

143

160

HOLD

2-Aug-13

146

160

HOLD

14-Nov-13

144

130

HOLD

4-Feb-14

143

127

SELL

30-May-14

149

127

SELL

May-14

Apr-14

Mar-14

Feb-14

Jan-14

Dec-13

Nov-13

Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

May-13

Mar-13

Feb-13

80

Apr-13

110

Source: Bloomberg, SSLe

SBICAP Securities Limited

Corporate Office: Mafatlal Chambers, A-Wing, 2nd Floor, N. M. Joshi Marg, Lower Parel, Mumbai -400013.
Tel.: 91-22-42273300/01 | Fax: 91-22-42273335 | Email: sbicapresearch@sbicapsec.com | www.sbicapsec.com

KEY TO INVESTMENT RATINGS (w.e.f. February 2013)

Guide to the expected return over the next 12 months. 1=BUY (expected to give absolute returns of 15 or more percentage points);
2=HOLD (expected to give absolute returns between -10 to 15 percentage points); 3=SELL (expected to give absolute returns less then 10 percentage points)
DISCLAIMER
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May 30, 2014 | 5

Tata Global Beverages: EOCs performance slips further

SBICAP Securities Ltd

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sagarika.mukherjee@sbicapsec.com

May 30, 2014 | 6