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Tata Global Beverages Equity Research

HomeCompanyTata Global Beverages Equity Research

Date of Research – 21 January 2016

Price – Rs. 121.70

About the Company

Tata Finlay was set up as a joint venture between Tata Sons and the UK-based tea plantation company, James Finlay and Company in 1962. In 1983 Tata Tea was born after James Finlay sold his shareholding to Tata. The name Tata Tea was later changed to the company’s current name, Tata Global Beverages Limited (“Tata Global” or the “Company”) which has established itself as a global non-alcoholic beverages Company headquartered in West Bengal, India. The Company, through its subsidiaries, joint ventures and associates, is engaged in the trading, production and distribution of tea, coffee, water and other beverage products. It is the world’s second-largest manufacturer and distributor of tea and a major producer of coffee. The Commpany operates in the United Kingdom and has significant businesses in the United States, Canada, Australia, Poland and the Czech Republic, as well as a number of joint ventures in South Africa, Pakistan and Bangladesh.

Tata Global operates in three main segments: Tea, which includes cultivation and manufacture of black tea and instant tea, tea buying/ blending and sale of tea in bulk or value added form; Coffee, which includes cultivation of coffee, pepper and other plantation crops and conversion of coffee into products, such as roast and ground coffee and instant coffee; and others including sale of natural mineral water, other minor crops, curing operations of coffee and trading of items required for coffee plantations. Company’s major brands includes Tata Tea, Tetley, Kannan Devan, Chakra Gold and Gemini – catering to all major consumer segments for tea.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 7,350.98 7,737.61 7,993.39 8,110.51  6,779.55 
Expenses 6,582.49 6,985.72 7,218.53 7,435.85  5,988.42  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 768.49 751.89 774.86 674.66  791.13  
Depreciation 105.10 129.06 133.11 142.93  126.04  
Finance Costs 84.44 86.53 81.86 68.77  91.53  
Other income 86.01 81.80 69.98 70.60  83.10  
Exceptional items 28.17 (88.76) 129.99 (11.88)  (5.30) 
PBT 636.79 706.86 499.88 545.44  661.96  
Tax 164.07 184.49 215.52 210.40  198.31  
PAT (before Minority Interest and share of Associates) 472.72 522.37 284.36 335.04  463.65
Profit/ (loss) attributable to Minority Interest 72.31 28.99 25.66 7.72  – 
Share of profit / (loss) of Associates 27.66 12.87 10.88 1.41  8.85  
Consolidated Profit / (Loss) for the year 372.75 480.51 247.82 325.91  454.80  

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 10.45 9.72 9.69 8.32  11.67 
Net Profit Margin Ratio 6.43 6.75 3.56 0.51  6.84 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 61.84 61.84 61.84 61.84 63.11 
Reserves & Surplus 4,503.90 4,748.28 5,787.01 5,430.95 5,655.81 
Net worth (shareholders funds) 4,565.74 4,810.12 5,848.85 5,492.79 5,718.92 
Minority Interest 1,065.92 813.91 924.07 876.21 880.69 
Long term borrowings 739.34 672.70 1,053.75 883.94 505.53 
Current liabilities 1,512.34 2,147.63 1,739.49 1,797.90 2,066.42 
Other long term liabilities and provisions 329.76 295.56 299.06 304.56 266.37 
Deferred Tax Liabilities 65.72 53.96 46.25 156.42 179.81 
Total Liabilities 8,278.82 8,793.88 9,911.47 9,511.83 9,617.74 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 4,292.79 4,525.01 5,240.58 4,968.86 4,892.97 
Noncurrent Investments 473.52 576.03 607.87 617.76 600.57 
Current assets 3,393.19 3,609.20 3,856.73 3,611.14 3,771.02 
Long term advances and other noncurrent assets 119.32 83.65 206.29 259.82 310.90 
Deferred tax assets 42.28
Total assets 8,278.82 8,793.88 9,911.47 9,511.83 9,617.74 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 9.78 12.20 9.61 10.68 9.50 
ROE / RONW 9.46 7.75 8.22 4.51 5.86 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 7,350.98 7,737.61 7,993.39 8,110.51 6,779.55 
Growth (%) 10.86 % 5.26 % 3.31 % 1.47 %  (16.41 %) 
PAT (Rs. Cr.) 472.72 522.37 284.36 335.04  463.65  
Growth (%) 9.45 % 10.50 % (45.56 %) 17.82 %  38.39 % 
Earnings Per Share – Basic (Rs. ) 6.03 7.77 3.93 5.16  6.17 
Earning Per Share – Diluted (Rs. ) 6.03 7.77 3.93 5.16  6.17 
Price to Earnings 21.23 19.20 37.20 23.45  24.65 

Dividend History

The Company has maintained an average dividend yield of 1.66 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Tata Global’s average current ratio over the last 5 financial years has been 1.99 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Tata Global’s average long term debt to equity ratio over the last 5 financial years has been 0.12 times which indicates that the Company is operating with a low level of debt and is well placed to meet its obligations.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Tata Global’s average interest coverage ratio over the last 5 financial years has been 9.18 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Tata Global reported a promoter holding of 35.72 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 32.45 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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