Analyst Corner: Reiterate ‘buy’ on TGBL, revised target price Rs 450

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By ICICI Securities Direct

Tata Global Beverages (TGBL) received National Company Law Tribunal (NCLT) approval for merger with Tata Chemicals' (TCL) consumer business. TCL's consumer business has been growing at a strong ~20% over the last two years, backed by robust growth in volumes across salt, pulses and spices. It has been maintaining its operating margins around 16%, much higher than TGBL's ~13% (as on H1FY20).
Though pulses and spices segments are smaller in size, we believe these underpenetrated and high growth categories would aid TGBL's growth. We believe investment behind new categories (Tata Dx detergent powder and Tata Nx sugar-free natural sweetener) including other newer segments, would be the key to growth, going ahead.

India business to gain led by robust tea segment growth. TGBL commands 20% market share in the Indian tea segment.

It expects to continue to grow above industry led by new launches and focus on premium tea varieties. The branded tea business has delivered robust volume growth of 8% in H1FY20 driven by market share gains, inorganic growth, product innovation and focus on premiumisation.

TGBL's India business revenue contribution has increased from 47% in FY19 to ~52% in H1FY20 with impressive EBITDA margins of 13.5%. The company has been exiting non-core international markets (exit loss-making China, Russia and Czech Republic subsidiaries and stake divested in its Sri Lankan plantations), which has been a drag on sales growth. We have valued TGBL on an SOTP basis, valuing the India domestic business (including TCL's consumer business) at 5x FY22E sales. We reiterate our 'BUY' rating on the stock with a revised target price of `450 per share.