Ashish Chugh, Investment Analyst and Author of Hidden Gems told CNBC-TV18, "I am not looking just at a benefit which Tata Global Beverage is going to get from Starbucks. Probably that could be the trigger for a re-rating of the stock. I believe that if you compare this company with the other FMCG players, this company is available at attractive valuations."
He further added, "The company was earlier called Tata Tea and it is perceived more as a tea company and a commodity play. This company has got a number of brands. Tata Tea of course is a super brand. Then this company has got Tetley which was acquired a few years back. Tetley has got operations in more than 70 countries."
"It also acquired Good Earth Tea in US. A few years back, it acquired Eight O'Clock Coffee. So it has been on an acquisition spree, Himalayan Mineral Water is the latest one and Tata Coffee is a subsidiary of Tata Tea," Chugh said.
He further said, "The company made a profitable exit in Glaceau, which it sold to Coca Cola where it made a profit of Rs 2,400 crore and that made the company's balance sheet very comfortable. It had a debt of close to Rs 4,500 crore in 2007, which today has come down to a level of about Rs 1,400 crore. The company is holding cash of about Rs 700 crore in the balance sheet, so from a balance sheet point of view it is very comfortable."
"We do not have exact peer group to compare with Tata Global, but if I take in general the other FMCG players like Hindustan Unilever (HUL), ITC, Nestle and even the Indian FMCG companies like Dabur, Emami, Asian Paints which are mainly branded plays, most of these companies are available at between 4-7 times their sales. The market cap-to-sales is 4-7 times, whereas in case of Tata Global market cap is just about Rs 9,000 crore, sales is about Rs 7,500 crore and it is available at a market cap-to-sales of roughly 1.2 times. So I think a re-rating is imminent in this stock," Chugh said.
"What is going to drive that re-rating I do not have a clue on that. But maybe as you are seeing that when we see more Starbucks stores a year or two years down the line then maybe analysts start benchmarking it to something like Jubilant Foodworks. So in any case whether that happens or not it is available at extremely reasonable valuation and it is a value pick in the largecap space."
Disclosure: Analyst or his family does not hold the above stock.
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