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A Starbucks breakeven in FY19 to lift Tata Global

, ET Bureau|
Updated: Jan 24, 2019, 07.57 AM IST
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Highlights

  • Analysts expect the revenue to more than double in the next two to three years.
  • They have assigned a value of Rs 38-40 per share to Starbucks compared with less than Rs 30 a year ago.
  • On Wednesday, TGB’s stock closed at Rs 210.5, 0.7 per cent lower from the previous day’s close.
ET Intelligence Group: After more than six years of opening its first store, Starbucks India, the premium coffee chain is expected to break even by the end of FY19. This augurs well for Tata Global Beverages (TGB), which has a 50:50 joint venture with the American coffee giant. This may offer some support to TGB’s stock which has lost 30 per cent over the past 12 months.

The turnaround in Starbucks operations would reflect in the full year numbers of TGB, which does not separately share the financials of the coffee chain business. After consolidation in FY16 and FY17, Starbucks expanded aggressively in FY18 taking its store count to 116. It opened 25 stores in the last fiscal, faster than eight and nine stores in the preceding two fiscals respectively, reflecting the management’s confidence in the strategy.

According to a Kotak report, revenue grew by 28 per cent in FY18 to Rs 342 crore compared with the 14 per cent growth in FY17, thanks to higher number of stores and higher sales per store. The same store sales growth (SSG) was estimated to be 18-20 per cent.

Another encouraging factor is the shrinking operating loss following cost reduction measures and better operating leverage. The operating loss before depreciation reduced to Rs 2.3 crore in FY18 from Rs 11.1 crore in FY17. The staff cost-sales ratio reduced by 191 basis points to 19.3 per cent and rent cost-sales ratio fell by 122 basis points to 20.5 per cent. The gross margin at 70 per cent was the highest since the beginning of Starbucks’ operations. The company reported net loss of Rs 30.5 crore in FY18.
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The goods and services tax (GST) was reduced from 18 per cent to 5 per cent is also a major positive.

Lower taxes, consistent growth and improving operating leverage should help the coffee player to become profitable this year. Starbucks is a high growth business for TGB, which has been grappling with low growth in its other businesses such as tea and coffee brands in India and overseas. Analysts expect the revenue to more than double in the next two to three years. They have assigned a value of Rs 38-40 per share to Starbucks compared with less than Rs 30 a year ago. On Wednesday, TGB’s stock closed at Rs 210.5, 0.7 per cent lower from the previous day’s close.

Also Read

Starbucks to embark on aggressive expansion plan in India

Starbucks to add around 10 stores this fiscal

Tata Starbucks posts 30% jump in FY19 sales on store additions

Burger King leaves Starbucks behind

Tata Starbucks appoints new CEO

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