Tata Global Beverages Ltd is the world’s second largest tea company incorporated in the year 1964. It is a global beverage brand having a presence in over 40 countries. The company is engaged in trading, production and distribution of tea, coffee and water. Further, Tata Global has continued to maintain a leadership position driven by strong brands like Tata Tea, Tetley, Himalayan natural mineral water, Tata Gluco+, Tata Water Plus, Good Earth Tea and Eight O, clock coffee.

Market Data:

CMP	Rs. 209.10
BSE Code	500800
NSE Code	TATAGLOBAL
Market CAP	Rs. 13,288 Cr.
52 Week High	Rs. 300
52Week Low	Rs. 177.05

 

Financial for the year 2017-18

• Revenue from operations for Q4FY19 stood at Rs.1775.46 crores as against Rs. 1688.40 crores in Q4FY18. It recorded 8% YoY increase. The revenue from operations increased by 2% at underlying terms QoQ and 5.2% on a YoY basis.

 

• Revenue from the international business declined by 0.2% YoY from Rs. 834 crores in Q4FY18 to Rs. 832 in Q4FY19. The decline was due to various reasons namely, the US performance of the company that was flat on a QoQ basis (negative 9%in terms of underlying volumes), due to a decline in the sales and increase in advertisement cost incurred. Their business arm based in Australia restructured their business. They entered into a new business arrangement due to the change in the licensing norms and other arrangements that dragged the international business.

 

• EBITDA for Q4FY19 stood at Rs. 176 crores up by 16.3% YoY as compared to Rs. 151 crores in Q4FY18. EBITDA Margins for Q4FY19 was at 9.9% Vs 9% in Q4FY18.

 

• Profit before exceptional items and tax grew by 24% on a YoY basis and stood at Rs. 161.04crores Q4FY19, as compared to Rs. 126.37 crores Q4FY18. Driven by robust sales in the quarter and lower commodity cost in the international markets in Q4FY19.

 

• Profit before Tax (PBT) for Q4FY19 stood at Rs. 153 crores against Rs. 128 crores in Q4FY18. It was up by 20% YoY, mainly due to the pickup of the performance of the instant coffee business and the company’s coffee plantation segment (Non-branded segment).

 

• The Profit after tax declined by 18.1%, from Rs. 115 crores in Q4FY18 to Rs. 94 crores in Q4FY19. The decline recorded was mainly due to the hike in the tax expenses for Q4FY19 of Rs. 58.83 crores as compared to Rs. 13.02 crores in Q4FY18. It was a one-time tax credit that the company had to pay in this quarter. The decline in the profits was also driven by the share of losses from the company’s Joint venture and associates rose due to the impact of seasonal disruption from North-Indian plantation business and one-off items. The consolidated profits decreased on YoY basis also due to changes in the legislation ruling in the UK for UK pension scheme which is a one-time expense incurred this quarter.

 

• The Board of director has recommended a dividend of Rs. 2.50 per share for FY19.

 

• KDHP, the plantation business in Kerala had an improvement in the performance despite unseasonal rains in the region.

 

• Segmental Performance:

Topline growth in the branded business for Q4FY19 has begun to yield returns, Indian operations grew by 12% YoY in terms of volume and 11% in terms of value. During this quarter, Chakra Gold became the third largest brand in India in the branded tea portfolio. Tata cha was launched in Bangalore in this year; it is a retail venture of the company. They have opened 6 stores until now which is spanning 3 different formats i.e. High street Kiosk and abbreviated.

The US business for FY19 grew by 20% YoY and 11% in the underlying terms. Further, in the US business arm, coffee revenue grew 28% and underlying by 18%, driven by K-Cup model change and lower branded bags sales. But for Q4FY19 the growth was flat or negative 9% in terms of underlying volumes led to an impact in the margins.

 

On the UK front, the company saw robust traction in terms of volume, and revenue. For Q4FY19 the company posted revenue growth of 4%.In terms of underlying driven there was volume growth of 8% QoQ and on a YoY basis the revenue growth was 1% and volumes grew by 8%. Led by new launches i.e. cold infusion and squash by Tetley which is a new segment created in the UK in FY19.

 

The sales in Canada business of the company was impacted YoY due to the black tea performance which was partly compensated by speciality aided by Tetley super teas. The company was awarded the 2019 Best New Product Award from Brand Spark during the quarter.

 

• Joint Venture:

The joint venture of the company Starbucks reported 30% revenue growth YoY. The company added 30new stores in FY19 which adds up to 146 stores of Starbucks across India.

 

The second Joint Venture of the company Nourishco posted a top-line growth of 10% YoY. The company launched Himalayan natural mineral water in a premium glass bottle packaging for both still and sparkling water in FY19. Post-GST classification for different categories led to a setback this year.

 

• Non-Branded Business:

Sales for Q3FY19 for Tata Coffee had an improved performance led by instant coffee which recorded the highest sales volume in this quarter.

The plantation business of the company in the non-branded segment had an adverse performance this quarter due to unseasonal rainfall disruption.

 

• New Project in Q4FY19:

Tata Global inaugurated a new coffee plant in Vietnam on March 6, 2019. It is the Greenfield freeze-dried instant coffee facilities launched by the company during this quarter.

 

• Acquisition:

Tata Global Beverages has entered into a non-binding agreement to acquire the branded tea business i.e. Dhunseri Tea &Industry Ltd for worth Rs. 101 cores.  Dhunseri tea owns 2 large brands namely ‘Lal Ghoda’ and ‘Kala Ghoda’; they are one of the leading local brands in Rajasthan holding a market share of 6%. The overall branded tea market size in Rajasthan accounts to 1,300 crores and in non-branded market share in Rajasthan is 800 crores.

 

• The company’s ROE is around 10.14% and ROA of around 5.67%.

 

 

Future Expectation:

 

1. Tata Global aims to increase its sales and distribution network and also plans to create a fully digitally transformed end to end system.

 

2. The company plans to improve plantation performance and build order pipeline for Vietnam Plant that was launched in this quarter.

 

3. Tata Global aims to encourage hyper growth in TATA Gluco+ by entering into different states in India.

 

The company reported weak quarterly results mainly due to an increase in tax expenses and other one-off items dragged the profits for Q4FY19.

 

Valuation:

 

At CMP of Rs. 208.90, the stock is trading at P/E multiple of 32.31x. Despite weak results in the quarter, the company has a robust portfolio with the branded segment which contributes 89% of the revenue for the company. Along with this Tata Global holds a leadership position in their branded tea segment. Further, The Joint Venture with Starbucks continues to gain traction (30% Revenue growth YoY). To reduce the losses in its joint venture the company has taken various cost restructuring methods. The recent acquisition of Dhunseri Tea & Industry Ltd will increase its penetration in India. The company is expected to increase its market share across geographies driven by its innovative premium product offerings. Considering all these factors, we maintain BUY recommendation on this stock for the long term.

 

 

Key Parameters:

 

1. Net profit: Rs.93.82 crores
2. P/E: 31x
3. ROE: 14%
4. ROA:67%
5. Dividend Yield: 19%
6. EPS: 6.47
7. ROCE: 53%
8. ROIC: 47%

 

Shareholding pattern	%
Promoter & Promoter Group	34.45%
Mutual Funds	9.55%
Alternative Investment Funds	0.03%
Foreign Portfolio Investors	25.37%
Financial Institutions	3.84%
Insurance Companies	0.25%
Non-Institution	26.50%

 Shareholding pattern (%)

Financial Highlights –

                                                                                                                     (In  crores)

Particulars	Q3FY18	Q4FY18	Q1FY19	Q2FY19	Q3FY19	Q4FY19
Net Revenues	1730.40	1688.4	1802.6	1936	1936	1810.69
EBITDA	235.10	145.7	248.8	166.7	196.2	176
EBITDA Margin	13.6%	8.6%	13.8%	9.5%	10.3%	9.9%
Net Profit	188.60	73.20	140.9	184	108.9	94
PAT Margin	6%	6.8%	7%	7%	6%	5.3%

 

Net Profit Margin:

 

The branded tea business contributed to strong volume and revenue growth. Two new tea variants Tata Tea Chakra Gold Activ+ and Kanan Devan were launched. With the extraction business in full swing, the non-branded segment incremented. The operating profits of the non-branded segment improved with the performance being driven by extraction business, cost management and monetization on non-core assets. The plantation performance was however hampered with the company bearing the crop loss due to adverse weather conditions.

 

 

The Indian branded tea market, which is at the core of the Company’s business, not only witnessed healthy growth but also increased competition. In UK, where Tetley is a strong and much-loved brand, the business has been affected by the continued degrowth in the black tea market.

 

Revenue from operations at Rs. 3430 Crores, higher than the previous year by 7%. This was driven by improvement across all major brands in the Indian Branded tea portfolio.

 

 

The Net profit of the company stood at Rs 457 crores FY19, delivering negative growth of 17% YoY. The de-growth was mainly recorded due to the loss in exceptional items, one-time tax credit in the US, along with the associated companies and joint ventures recording losses due to one-off items.

 

 Consolidated Profit and Loss account for the year ended 31^st March’19

 

Particulars	2019	2018
Income:
Revenue from Operations	7251.5	6815.35
Other Income	157.13	94.15
Total Income	7408.63	6909.5
Expenses:
Cost of Materials Consumed	3294.18	3203.22
Purchases of Stock-in-trade	727.87	542.89
Change in Inventories of Finished Goods/Work-in-progress/Stock-in-trade	-14.41	-46.8
Employee Benefits Expense	806.3	821.37
Finance Costs	52.47	42.76
Depreciation and Amortisation Expense	122.57	116.04
Advertisement & Sales Charge	547.52	508.91
Other Expenses	1104.13	946.85
Total Expenses	6640.63	6135.24
Profit before Exceptional Items and Taxes	768	774.26
Exceptional Items (Net)	-33.29	-21.13
Profit before Tax	734.71	753.13
Tax Expenses:
Current Tax	256.03	273.38
Deferred Tax	4.85	-87.51
Profit after Taxation before share of results of investments accounted using equity method	473.83	567.26
Share of net profit/(loss) in Associates and Joint Ventures using equity method	-16.85	-10.76
Profit for the year	456.98	556.5

 

Consolidated Balance Sheet on 31^st March’19

 

Particulars	FY19	FY18
ASSETS:
Non-Current Assets
Property Plant and Equipment	808.8	739.71
Capital Work in Progress	413.3	129.52
Investment Property	51.6	50.33
Goodwill	3785.07	3723.5
Other Intangible Assets	267.84	284.64
Intangible Assets under Development	11.11	5.64
Investments accounted for using Equity method	287.6	262.84
Financial Assets:
Investments	316.9	329.96
Loans	17.09	21.02
Other Financial Assets	28.62	40.22
Deferred Tax Assets (Net)	58.04	131.77
Non-Current Tax Assets (Net)	86.26	56.48
Other Non-Current Assets	258.52	281.57
Current Assets:
Inventories	1609.86	1448.31
Financial Assets
Investments	583.16	568.53
Trade Receivables	680.55	648.28
Cash and Cash Equivalents	967.02	933.49
Other Bank Balances	66.59	304.65
Loans	245.01	272.25
Other Financial Assets	131.4	107.22
Current Tax Assets (Net)	2.38	40.64
Other Current Assets	224.83	173.78
	4510.8	4497.15
Assets of disposal group	37.17	37.86
TOTAL ASSETS	10938.72	10592.21
EQUITY AND LIABILITIES:
Equity
Equity Share Capital	63.11	63.11
Other Equity	7268.58	6968.49
Equity attributable to the equity holders of the company	7331.69	7031.6
Non-Controlling Interest	1027.68	1009.04
TOTAL EQUITY	8359.37	8040.64
Non-Current Liabilities
Financial Liabilities	787.24	655.99
Borrowings	7.61	6.37
Other Financial Liabilities	152.21	144.22
Provisions	145.45	131.45
Deferred Tax Liabilities (Net)	16.9	16.97
Non-Current Tax Liabilities	1109.41	955
Current Liabilities
Financial Liabilities
Borrowings	329.66	400.19
Trade Payables
Total outstanding dues of Microenterprises and Small enterprises	4.23	4.75
Total outstanding dues of creditors other than Microenterprises and Small enterprises	660.67	700.98
Other Financial Liabilities	304.77	261.75
Other Current Liabilities	81.38	88.98
Provisions	49.51	98.8
Current Tax Liability (Net)	27.95	30.59
Liabilities of disposal group	11.77	1586.04
TOTAL EQUITY AND LIABILITIES	10938.72	10592.21

 

 

Cash Flow Statement for FY18-19

 

Particulars	FY19	FY18
Cash Flow from operating activities:
Net Profit before Tax	734.71	753.13
Adjusted for
Depreciation and amortisation	122.57	116.04
Profit on Sale of Non-Current Investments		-33.78
Finance Cost	52.47	42.76
Dividend Income	-3.65	-14.19
Profit on sale of current investments (net)	-33.36	-21.9
Fair value movement in Financial instruments at fair value through profit and loss	-5.95	-11.77
Interest Income	-62.63	-34.07
Unrealised foreign exchange (gain) / loss	2.17	-2.08
Impairment loss recognised in trade receivables	2.04	0.34
Other non-operating income	-25.21
Debts and advances written off		0.32
(Profit) / Loss on sale of Property, Plant and Equipment including investment property (net)	-15.26	-2.33
Rental Income from Investment Property	-2.4	-2.26
Other Exceptional Expense / (Income) (net)		3.45
Operating Profit before working capital changes	765.5	793.66
Adjustments for :
Trade Receivables & Other Assets	-132.69	-114.34
Inventories	-155.54	-12.78
Trade Payables & Other Liabilities	-100.02	-11.76
Cash generated from Operations	377.25	654.78
Direct Taxes paid (net)	-167.38	-299.2
Net Cash from / (used in) Operating Activities	209.87	355.58
B. Cash Flow from Investing Activities
Payment for Property, Plant and Equipment including Intangibles	-282.28	-358.82
Sale of Property, Plant and Equipment	25.7	8.78
Sale of subsidiaries net of expenses		50.54
Rental Income from Investment Property	2.4	2.26
Sale of Investment in Associate		119.65
Sale of Non-Current Investments carried at Fair value through OCI	1.15	672.61
Investments in Joint Ventures	-35.8	-13.22
(Purchase) / Sale of Current Investments (net)	24.69	-372.48
Sale of Investment Property		18.95
Dividend Income received (including dividend from associates & JVs)	5.22	15.5
Interest Income received	48.7	32.97
(Placement) / Redemption of Fixed deposits (net)	240	-295
Inter Corporate Loans and Deposits (net)	43.5	44.16
Net cash from / (used in) Investing Activities	73.28	-74.1
Cash Flow from Financing Activities
Proceeds from Long term borrowings (net)	101.14	216.04
Repayment of short term borrowings (net)	-65.31
Working capital facilities (net)		-6.48
Dividend & Dividend Tax Paid	-215.82	-211.78
Finance Cost Paid	-43.74	-28.17
Net Cash used in Financing Activities	-223.73	-30.39
Net increase / (decrease) in Cash and Cash Equivalents	59.42	251.09
Cash and Cash Equivalents balances
Balances at the beginning of the year	698.17	404.08
Exchange Gain/ (Loss) on translation of foreign currency cash/cash equivalents	-20.11	43
Balances at the end of the year	737.48	698.17

 

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Tata Global Beverages reported subdued Q4FY19 quarter

 

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