Feb 12, 2013 09:46 AM IST | Source: CNBC-TV18

Tata Global Beverage a long term bet, says Tater

Aashish Tater, Head of Research, feels that Tata Global Beverage is a definite portfolio bet from longer-term perspective.

Aashish Tater, Head of Research, feels that Tata Global Beverage is a definite portfolio bet from longer-term perspective.

Tater told CNBC-TV18, "Last time when we discussed about tea industry and Tata Global Beverages in specific, we had an idea that tea as a commodity will be rated to fast moving consumer goods (FMCG) product and that has been a key expansion for Tata Global Beverages. That is why it explains the rally that we had suggested from Rs 100 to Rs 150 in last one year where we recommended the stock.”

He further added, “We had a very aggressive target of Rs 250 from three year’s perspective and now one year giving us 50 percent, we still feel that another Rs 100 can be made in next two years from this particular stock.”

“There are three rationales, any brand product, which has got an upward incline -- and the management is able to manage the commodity cycle -- globally has been able to get a marketcap to sales ratio of almost 3.5 times. Currently, the consolidated sales, the company would report somewhere around Rs 7,600 crore for this fiscal and we are forecasting close to Rs 8,650 crore for next fiscal. The current marketcap of the company is roughly around Rs 8,700 crore mark giving you a forward marketcap to sales ratio of just one time.”

“Take a call when Starbucks stores start operating with Tata Global Beverages. If you see Starbucks on consolidated front, for every revenue they earn on a single dollar, they get a marketcap to sales of USD 4 i.e. one to four times the revenue itself because they have been consistent. Given that the Indian story for this particular kind of venture is much higher, we feel that particular asset for the company will be valued at almost a billion dollar if someone has patience to hold for next three-four years.”

“An asset which itself can fetch you almost a billion dollar apart from your own asset, I think this is one stock which is a definite portfolio bet from longer-term perspective. We are still forecasting 25-30 percent jump year-on-year (YoY) for these kind of stocks. These are relatively low beta stocks given there is volatility into market and you want to hide into safety bets.”

“I think there will be a lot of support for these kind of companies because if you see Coke and everything whenever there is a global turmoil or anything happens, people try to take a safety net into these kind of companies where cash flows can easily be projected and valuations do look expensive. However, at 16-17 times, we feel there is still 20-25 percent arbitrage in terms of price to earnings (P/E) itself compared to global peers in the similar space. So from every angle we feel the worse could be around Rs 130-135 for the year and the best is still to come for companies like Tata Global Beverages."

Disclosure: It is safe to assume stock discussed has been recommended to clients.

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