Stock Review: TATA GLOBAL BEVERAGES

 

 

The scrip of Tata Global Beverages – the international beverage company of the Tata group --is one of the two losers in the 10-member BSE FMCG Index since the start of the year. The company's stock price, which has corrected by 14% since the beginning of 2011 and dropped by 23% since past one year, nevertheless seems to be on the path of slow recovery since past few weeks. The stock has gained 6.8% in past one month in tandem with the general rally witnessed in most FMCG stocks. The positive change in investor sentiment stems from the belief that commodity inflation has peaked and input cost pressure on consumer companies is likely to ease from hereon.

Tata Global Beverages logged a dismal performance for the fiscal 2011 – characterised by declining single digit growth in revenues and de-growth in operating profit. Rising prices of tea and coffee severely impacted the company's bottomline and margins. Exchange rate fluctuations adversely impacted the topline numbers. Low consumer demand amid intense competition in its key markets of UK and the US led to muted growth of tea and coffee business respectively in these markets. This despite the fact that the company increased the advertising spends on its key brands. It spent 20% higher amount than the previous year. The company also faced resistance from retailers on reducing their margins. Increase in other costs like transportation, packaging, power & fuel etc also took a toll on the bottomline.

If as per the general belief, commodity prices do not see any more upside, there shall be some relief for the company's bottomline. However, competition and forex volatility are more lasting concerns for the company to contend with. The company expects its strategic alliances forged with PepsiCo India and Kerala Ayurvedic company to become growth drivers in the future, though more clarity is yet to emerge on the details of the alliances. Meanwhile, the company is scouting for acquisitions or joint ventures in the beverage segment to forge growth. Any speculation or news in this regard may help sustain the buying interest in the company's stock. However, any turnaround in the company's financial performance is not visible in the immediate term.