Stock Review: Tata Global Beverages

This is a company which has evolved from an Indian tea farming company to a global beverages company, having a number of brands and focused towards marketing of those brands. The brands which are owned by the company and the group include Tata Tea which is a super brand in India. Besides this, they have Tetley which is present in almost 70 countries and has a market leadership in UK and Canada.

Good Earth is a leader in herbal tea and specialty teas in the US. The other brands of the group are Tata Coffee, Eight O'Clock Coffee which is one for the best selling whole bean coffee in the US. They also have Himalaya Water which is under Mount Everest Mineral water.

Over a period of time, since the Tata Group has changed the name from Tata Tea to Tata Global Beverages, Mr Ratan Tata has indicated that all the beverage business of the group maybe consolidated into Tata Global Beverages, which means that in future you may see a merger of Tata Coffee and Mount Everest Mineral Water into Tata Global Beverages.

The balance Sheet of the company became healthy in 2007 after it sold Glaceau stake to Coca Cola for about USD 1.2 billion and made a profit of close to USD 525 million which translates into a profit of about Rs 2,300-2,400 crore. This infused a lot of cash into the company and the company's balance sheet became much healthier. Today, the company has cash of close to Rs 2,000 crore. It has got a debt of close to Rs 1,700 crore but the cash in the balance sheet will provide the armour for future expansion of the company.

Mr Ratan Tata's vision is to make this company into a reckoning player in the global beverage business. In the future we may see the Tata Group introducing a number of healthy drinks like lassi, nimbu pani, cold coffee, iced tea etc into the folder of Tata Global Beverages. Besides this the water business has immense potential.

With regards to valuation, this company has a marketcap of less than Rs 7,000 crore. The sale of the company is almost about Rs 6,500-7,000 crore which means it is available at one time of sales. If you look at other FMCG companies including HLL, Nestle, ITC etc these companies are trading at between 4-7 times of their sales.

Here the perception is that it is a commodity company but over the years it has successfully transformed from a commodity to a marketing and FMCG company. Over a period of time this stock will witness a re-rating and it may be valued at almost the same level as the peer group. Besides that, the company has aggressive plans over the next five-years which may see the turnover becoming 2-3 times from these levels.

Tetley, itself may have a valuation of more than Rs 7,000 crore. This is one of those stocks for an institutional investor or for an investor who doesn't want to take a risk with small and midcaps. In the largecap space, you have this company which is a value play and it trades at much lower than the peer group. This is a company where you can witness growth to come in the future.