Hold Tata Global Beverages; target of Rs 105: KRChoksey

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Hold Tata Global Beverages; target of Rs 105: KRChoksey

KRChoksey has maintained hold rating on Tata Global Beverages (TGBL) with a target price of Rs 105 in its June 7, 2011 research report.

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KRChoksey has maintained hold rating on Tata Global Beverages (TGBL) with a target price of Rs 105 in its June 7, 2011 research report.

"Tata Global Beverages Ltd (TGBL) reported dismal performance with net sales increasing by modest 3% y-o-y to Rs 1567 crores, on the back of price hikes & volume decline across the segments. Operating profit declined by 10.5% y-o-y to Rs 158 crores on the account of significant rise in the commodity cost & Advertising spend. Consequently OPM declined by 115 bps y-o-y to 10.1%. Profit before tax & exceptional items degrew by 18.2% y-o-y to Rs 121 crores on the back of lower operating profit & decline in other income. TGBL's performance in Q4FY11 was disappointing with net sales of Rs 1567 crores (3% y-o-y growth) on the back of price hikes & volume decline in domestic as well as International business. Tea segment registered a modest growth of 2.2 % y-o-y to Rs 1210 crore & the contribution of Tea segment to the top line increased by 180bps y-o-y (from 75.4% in Q4FY10 to 77.2% in Q4FY11). However Coffee & other products as category degrew by 1.3% y-o-y to Rs 361 crore & its contribution to the top line declined by 30 bps y-o-y (from 23.3% in Q4FY10 to 23% in Q4FY11).Lower coffee demand across all the geographies due to steep rise in prices lead to decline in sales & margins for the coffee segment in Q4FY11."

"EBITDA declined significantly by 10.5% y-o-y to Rs158 crore on the back of significant increase in the raw material costs (tea & Coffee). Rising commodity prices lead to 189 bps y-o-y increase in raw material consumption (from 40.3% in Q4FY10 to 42.2% in Q4FY11) as a % to sales. This coupled with 7% y-o-y rise in advertising spend resulted in overall operating margins declining by 115 bps y-o-y to 10.1%. EBIT margins for both tea & coffee segment declined on the back of higher input costs & higher investment behind brands due to rising competitive intensity. Management expects raw material pressure to reduce & prices to stabilize going forward on the back of higher tea output. Profit before tax & exceptional items declined by 18.2% y-o-y to Rs 121 crore on the back of higher interest cost & lower other income. On consolidated basis Tata Global Beverages registered a net profit of Rs 85.2 crore. For the full year Net sales were up marginally by 3% y-o-y to Rs 5982 crores. In terms of brands Tetley contributed 39% of the revenues followed by Indian tea operations & EOC which contributed 29% & 17% respectively for FY11. EBITDA degrew by 16% y-o-y to Rs 608 crores on the back of higher raw material costs & increased Adspends. Net profit declined by 26% y-o-y to Rs 292 crores for FY11."

"TGBL reported dismal set of numbers for FY11 with decline in volumes as well as margins. We expect margins to remain under pressure in H1FY12 on the back of higher input costs & increased spend on brand promotion. The key positive to watch for would be company's plan to its product portfolio in the entire beverage segment & JV with pepsico is one of the key initiatives in this direction. We recommend HOLD on Tata Global Beverages Ltd. with a target price of Rs 105, giving an upside potential of 12% from its current levels," says KRChoksey research report.

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