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Tata Global Beverages: A slow start to FY15
Sep 10, 2014

Tata Global Beverages Limited has announced its first quarter financial results of 2014-2015 (1QFY15). The company has reported 5% YoY increase in sales and 17% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Tata Global Beverages (TGBV) posted a revenue growth of 5.5% YoY.
  • On account of a faster rise in employee costs and other expenses, operating margin contracted by 0.9% during the quarter.
  • Excluding the impact of extraordinary items, net profits grew by 11% on lower tax incidence.

Financial performance snapshot
Rs(m) 1QFY14 1QFY15 Change
Revenues 18,135 19,131 5.5%
Expenditure 16,063 17,118 6.6%
Operating profit (EBDITA) 2,071 2,013 -2.8%
EBDITA margin (%) 11.4% 10.5% -0.9%
Other income 183 180 -1.9%
Interest 204 151  
Depreciation 288 350 21.6%
Profit before tax 1,763 1,692 -4.0%
Extraordinary inc/(exp) 216 (27)  
Tax 621 541 -12.9%
Profit after tax/(loss) 1,359 1,151 -15.3%
Share of profit/ loss from associates (93) 0  
Minority Interest 150 152  
Group Consolidated Net profit  1,116 999 -10.5%
Net profit margin (%) 6.2% 5.2% -0.9%
No. of shares (m)     618.4
Diluted earnings per share (Rs)*     5.57
Price to earnings ratio (x)*     29.4
*trailing twelve months

What has driven performance in 1QFY15?
  • TGBV clocked a 5.5% YoY topline growth backed by 10% growth in tea business and 15.5% increase in other business. However an 8.2% fall in revenues from the coffee business has led to a subdued rise in overall revenues. Among geographies, sales performance was particularly impacted in UK due to change in strategy by retailers in UK. During the quarter, the company acquired 100% stake in Australian company, Earth Rules Pty Ltd engaged in coffee business under the 'MAP' brand.

    Cost break-up
      1QFY14 1QFY15 Change in basis points
    Raw material 48.9% 48.9% -6.08
    Employee 10.3% 10.9% 62.42
    Advertisement 15.9% 14.9% -92.40
    Other expenditure 13.5% 14.8% 125.97

  • The company's profitability was adversely impacted by the poor performance of the plantation and extraction business that witnessed lower crop availability for sale. However, the branded business performed well during the quarter. The savings in ad-spends was offset by higher other expenditure including investment in other ventures and employee costs (all as a proportion of sales).

  • At the net level, the margin has improved slightly by 0.2% to 5.2% excluding the impact of exceptional items. The improvement has come on account of lower tax incidence that fell from 35.2% in 1QFY14 to 31.5% in 1QFY15. Depreciation outgo increased by 21.6% YoY during the quarter.
What to expect?
TGBV's foray into the green tea business in India under the Tetley brand has been growing by over 50%. The coffee pod business has been growing in strong double-digits in US, North Africa and Australia. Even the water business comprising of Himalayan and Tata Water Plus has been recording double-digit growth. The company has recently launched the Himalayan brand in Singapore through the Starbucks franchise. The company would be launching its sparkling water brand in India in the near future. The company's joint venture Tata Starbucks has opened 52 stores in six cities. However, both these businesses are yet to break-even.

At the current price of Rs 165, the stock is trading at a multiple of 17 times its FY17 earnings. WE have given a BUY at lower level recommendation on this stock on 31st January 2014. As valuations still continue to remain stretched, we reiterate that subscribers do not buy the stock at current levels.

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