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    Tata Global Beverages: Good long-term prospects


    While the company cannot be called undervalued, analysts believe that investor interest will remain in the counter due to its unique global beverage biz.

    A strong presence in the global market and new launches will help Tata Global Beverages boost its revenues.

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    The consolidated results of Tata Global Beverages for the fourth quarter of 2012-13 were in line with the market expectation. The company’s revenue and net profit after minority interest grew 7% and 77%, respectively, on a year-on-year basis, helped by a strong performance in the South Asian region and a turnaround in the ‘Eight O’ Clock’ coffee business in the US, among others.

    Tata Global Beverages is expected to maintain good performance in the coming quarters as well due to a number of factors. First, it was able to improve its margins in a tough operating environment, and these are expected to grow further due to increased demand for premium tea and coffee products as well as a turnaround in the American and Australian businesses. The margin improvement is also being helped by the constant efforts of the management to launch new valueadded products. For example, Tata Global Beverages has launched or is going to launch a new range of fruit and herbal teas in Australia and green tea variants in India as well as re-launch ‘nutrient water’ branded as Tata Water Plus in India. Volume growth is also expected to continue in all major markets except in Europe.

    Also, around 65% of the company’s revenues are coming from overseas operations, which will benefit from the recent crash in the rupee in the form of increased currency translation.

    The recent correction in this counter has also brought the valuation to moderate levels. While the company cannot be called undervalued, analysts believe that investor interest will remain in the counter due to its unique global non-alcoholic beverage business. Its new focus on the health/wellness segment makes Tata Global Beverages an exciting consumer franchise.

    The expected strong EPS growth due to the expansion of the product portfolio in new geographies is another reason that justifies the prevailing valuation. The water business and Tata Starbucks JV is not contributing to the EPS now. The loss of the water business was placed at Rs 25 crore in 2012-13. Its margin/earnings could surprise on the upside if there is a break-even in these businesses, which means the ongoing price correction should be used as an opportunity to accumulate the stock. Though value addition is happening at a higher level, any sudden volatility in tea/coffee prices could be a shortterm risk in this counter.

    Selection methodology: We pick the stock that has shown the maximum increase in consensus analyst rating during the past month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weightages to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell). An improvement in rating indicates that the analysts are becoming more bullish on the stock. To make sure that we pick only companies with a decent analyst coverage, this search will be restricted to stocks that have been covered by at least 10 analysts.
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    1 Comment on this Story

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