Hold Tata Global Beverages; target of Rs 147: ICICI Direct

ICICI Direct's research report on Tata Global BeveragesTGBL’s revenues comprising 37% (FY16) from India (standalone) were the star performer for the company posting growth at 11.3% CAGR (FY09-16). TGBL achieved the milestone of 100 million kg (mkg) of sales of tea in a fiscal in FY15. The company has consistently expanded its market share in the Indian tea market and maintained its leadership position led by its strong brands, Tata Tea, Tata Tea Gold, Agni and Kanan Devan. In India, the company launched Tata Tea Fusion at the premium end of tea segment in FY16 after Tetley launch in green & specialty tea in FY15. Estimated market size of green tea in India is Rs 600-700 crore. TGBL also entered the branded instant coffee segment with Tata Coffee Grand in FY16. Led by strong market initiatives, constant innovation and new launches, we expect Indian tea business growth at 7.4% CAGR (FY16-18E) while overall tea business is expected to grow at 7.1% CAGR in FY16-18E.

We believe that with brand investments in tea, coffee & traction in growth of premium tea, revenue growth would remain modest for TGBL at 5.9% CAGR for FY16-18E. Exceptional losses have resulted in a low base for earnings in FY15 & FY16 leading to adjusted PAT growth of 29.4% CAGR in FY16-18E. We maintain cautious outlook on TGBL due to slow pace of Starbucks store expansion & delay in revival of international subsidiaries’ growth. We value the stock on an SOTP basis arriving at a target price of Rs 147 & maintain HOLD rating.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.