JMFL
Tata Global Beverages (Buy)
CMP: ₹208.9
Target: ₹215
Tata Global Beverages (TGBL) staged a surprisingly strong profit performance in 4Q helped primarily by sustained margin improvement in international tea business and healthy profitability in branded coffee; easy comp in Tata Coffee’s non-branded business also helped.
Domestic tea revenue grew well (12 per cent volume and 10 per cent value growth) but profitability was weak due to tea price inflation. Interestingly, consolidated EBITDA grew 20 per cent notwithstanding 16 per cent fall in domestic tea EBITDA. This is the first quarter in which Tetley, EOC and others could entirely negate the weakness in domestic tea profitability.
TGBL announced acquisition of the branded business of Dhunseri Tea (for ₹110 crore). This is to help boost its presence in Rajasthan which has hitherto been highly fragmented (largest player has a mere 12 per cent share) and possibly marks the start of a consolidation phase in the fragmented Indian tea market? TGBL’s near-term operating performance could be healthy (easy base in domestic tea) though its intrinsically weak business construct makes it less compelling to us as an investment theme.