Tata Global jumps 6% on robust Q2 numbers, all eyes on merger with Tata Chem’s consumer biz

Tata Motors

Shares of Tata Global Beverages (TGBL) rallied 5.85 percent intraday to hit new 52-week high of Rs 309 on October 31 after strong earnings reported by the company in quarter ended September 2019.

The stock rallied nearly 46 percent in last six months. It was quoting at Rs 305.40, up Rs 13.50, or 4.62 percent on the BSE at 1021 hours IST.

While having a buy call on the stock with a target price at Rs 325, JM Financial said Tata Global reported a strong Q2 performance albeit with some help from an easy base.

Domestic tea business staged a ‘comeback’ on profitability front while sustaining its strong volume growth trajectory (up 8 percent) – gross margin expanded 150bps sequentially and 50bps YoY. This, coupled with strong cost controls, drove 18-19 percent growth in standalone EBITDA (comparable basis ex Ind-AS 116 impact).

Consolidated EBITDA growth was much higher at 31-32 percent like-to-like (up 41 percent on reported basis) aided by strong profit performance from Coffee business as well (Branded Coffee EBIT grew 51 percent growth in EBIT), which was partly offset by a relatively more subdued EBIT growth in International Tea, said the brokerage.

Management also cited some phasing of ad-spends (down 5.5 percent YoY) which could normalize in the future and to that extent, may not be entirely sustainable, it added.

JM Financial expects the stock to react positively to the result especially since near-term profit performance would remain strong plus as hope builds up further around the impending merger of Tata Chemicals’ salt & spices business.

ICICI Direct also said after the company’s merger with Tata Chemicals’ consumer business in the near future and with TGBL’s focus on growing India business, there would be newer categories for the company to cater to and would further increase its India business contribution out of the total revenue pie.

India business volumes have been robust since the last three quarters.

Tata Global’s profit grew by 14.5 percent year-on-year to Rs 143.2 crore on revenue of Rs 1,834 crore that increased 4.1 percent compared to year-ago.

Net profit excluding one-off items recorded a growth of 45 percent, the company said.

At operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 40.7 percent YoY to Rs 234.5 crore and margin expanded 330 bps YoY as gross margin rose 160bps.

However, Morgan Stanley has underweight rating on the stock with a target price a Rs 165 per share, implying 43.4 percent downside from current levels.

“Q2 profit before tax was marginally above our estimate. Positives were 8 percent volume growth in the domestic branded business. Revenues in the international business declined due to lower pricing,” said the brokerage which believes there is no quick fix, especially for international business.

News Source:- Moneycontrol

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