Buy Tata Global Beverages

Transcription

Deutsche Bank
Markets Research
Rating
Company
Buy
Tata Global
Beverages
Asia
Date
16 April 2014
Initiation of Coverage
India
Consumer
Reuters
TAGL.BO
Bloomberg
TGBL IN
Price at 15 Apr 2014 (INR)
Exchange Ticker
BSE
TAGL
152.75
Price target - 12mth (INR)
Food & Beverage
200.00
52-week range (INR)
169.55 - 129.40
BSE 30
22,485
Transformational; initiating with a Buy
Incremental capital deployment in India and in growth businesses
Tata Global Beverages (TGB) has transformed from just a tea player into a
global beverages player. It is now investing in ‘good-for-you’ beverages (Pepsi
JV). While TGB’s execution has the potential to improve (sub-optimal returns
on M&A), its incremental capital deployment in India and in high-growth
businesses (Starbucks JV) is positive. We believe: (1) EBITDA margins have
bottomed out (c.600 bps decline over FY2008-13) and forecast an 11% EBITDA
CAGR over FY2014-16, and (2) the current price reflects the fair value of extant
businesses only (Starbucks JV, Pepsi JV, investments are in for free). We
initiate with Buy, target price of INR200 (30% upside potential).
Building an integrated global beverage business
TGB, the global #2 player in tea, has transformed itself into a global beverages
player through its many M&As in key markets (US, UK, Canada, Russia, etc.):
(1) Tetley deal in 2000 (value GBP271m), whose turnover was 3x that of TGB;
(2) specialty tea brand Good Earth in 2005; (3) Eight O’clock Coffee (through
subsidiary Tata Coffee) in 2006; and (4) in 2007/08, it briefly owned a 30%
stake in the Glaceau brand in the US (before Coca Cola acquired Glaceau). It is
now investing in ‘good-for-you’ beverages (Pepsi JV).
Four compelling reasons to read our report
First, despite the gloomy outlook for India Consumer Staples, TGB is one of the
turnaround stories. Second, TGB stock is not widely covered by multinational
brokers in India. Third, the deep-dive into global hot beverages, tea, coffee and
water businesses and mapping the potential for TGB. Fourth, why we believe a
sum-of-the-parts valuation is the right metric for TGB.
SOTP-based INR200 target price the highest on the Street, risks
We value TGB on an SOTP basis and assign a target price of INR200. We
believe SOTP is the best methodology due to TGB’s operations in multiple
geographies with different growth profiles. We forecast revenue and EBITDA
CAGR of 6% and 11% over FY14-16. Please refer to pages 48-56. Risks:
commodity price inflation; black tea a declining category in the UK and
Canada; and a complex ownership structure.
Manoj Menon
Gaurav Bhatia
Research Analyst
(+91) 22 7180 4358
[email protected]
Research Analyst
(+91) 22 7180 4055
[email protected]
Price/price relative
180
160
140
120
100
80
4/12
10/12
4/13
10/13
Tata Global Beverage
BSE 30 (Rebased)
Performance (%)
1m
3m
12m
Absolute
7.0
0.5
17.4
BSE 30
3.1
5.6
22.5
Source: Deutsche Bank
Forecasts And Ratios
Year End Mar 31
Sales (INRm)
EBITDA (INRm)
Reported NPAT (INRm)
Reported EPS FD(INR)
DB EPS FD (INR)
DB EPS growth (%)
PER (x)
EV/EBITDA (x)
DPS (net) (INR)
Yield (net) (%)
2012A
65,852.6
5,771.5
3,561.4
5.76
5.76
39.8
16.3
11.2
2.15
2.3
2013A
72,703.2
6,878.4
3,727.5
6.03
6.03
4.7
22.0
12.8
2.15
1.6
2014E
77,602.0
7,636.0
4,113.6
6.65
6.65
10.4
23.0
13.0
2.57
1.7
2015E
81,866.4
8,492.4
4,569.9
7.39
7.39
11.1
20.7
11.5
3.18
2.1
2016E
87,916.8
9,418.5
5,205.9
8.42
8.42
13.9
18.1
10.3
3.87
2.5
Source: Deutsche Bank estimates, company data
1
DB EPS is fully diluted and excludes non-recurring items
2
Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses
the year end close
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013.
16 April 2014
Food & Beverage
Tata Global Beverages
Fiscal year end 31-Mar
Model updated:16 April 2014
Running the numbers
2011
2012
2013
2014E
2015E
2016E
4.12
4.12
2.01
64.1
5.76
5.76
2.15
73.8
6.03
6.03
2.15
77.8
6.65
6.65
2.57
81.4
7.39
7.39
3.18
85.1
8.42
8.42
3.87
89.0
617
51,520
56,976
618
58,117
64,631
618
82,151
87,702
618
94,460
99,110
618
94,460
98,010
618
94,460
96,983
P/E (DB) (x)
P/E (Reported) (x)
P/BV (x)
20.3
20.3
1.45
16.3
16.3
1.47
22.0
22.0
1.62
23.0
23.0
1.88
20.7
20.7
1.79
18.1
18.1
1.72
FCF Yield (%)
Dividend Yield (%)
nm
2.4
2.8
2.3
nm
1.6
4.1
1.7
4.6
2.1
4.9
2.5
1.0
9.7
11.7
1.0
11.2
13.4
1.2
12.8
15.0
1.3
13.0
15.7
1.2
11.5
13.9
1.1
10.3
12.4
59,824
30,549
5,874
994
0
4,879
-1,210
202
95
1,179
4,848
2,023
580
0
2,543
65,853
32,622
5,771
961
0
4,810
-704
-151
225
1,404
5,511
1,417
607
0
3,561
72,703
37,033
6,878
1,051
0
5,827
-844
-277
-282
1,667
6,650
1,641
723
0
3,728
77,602
39,929
7,636
1,322
0
6,314
-752
-100
216
971
6,533
1,764
772
0
4,114
81,866
42,454
8,492
1,460
0
7,032
-588
-100
0
1,068
7,512
2,028
814
0
4,570
87,917
45,688
9,418
1,599
0
7,820
-424
-100
0
1,129
8,525
2,344
874
0
5,206
0
2,543
0
3,561
0
3,728
0
4,114
0
4,570
0
5,206
544
-1,013
-469
0
-1,939
-7,457
801
-9,065
-2,640
2,765
-1,164
1,601
0
-1,705
-1,956
-551
-2,611
-987
1,729
-1,793
-64
0
-1,756
4,423
-2,987
-385
-3,727
5,760
-1,931
3,829
0
-1,857
-2,000
-198
-227
-745
6,311
-1,982
4,329
0
-2,299
-2,000
-16
14
-649
6,679
-2,055
4,624
0
-2,802
-2,000
180
2
-920
9,973
5,631
32,395
5,865
23,781
77,645
10,214
16,779
26,993
39,571
11,081
50,652
241
7,362
6,004
36,924
5,665
26,833
82,788
8,883
17,589
26,472
45,657
10,659
56,317
1,521
6,977
6,961
38,289
5,779
29,932
87,939
10,168
21,530
31,699
48,101
8,139
56,240
3,191
6,750
7,570
38,289
5,679
31,893
90,182
8,168
22,745
30,914
50,357
8,911
59,268
1,418
6,764
8,093
38,289
5,579
33,599
92,325
6,168
23,803
29,972
52,628
9,725
62,353
-596
6,766
8,549
38,289
5,479
36,021
95,104
4,168
25,304
29,472
55,032
10,599
65,632
-2,598
3.4
-34.9
9.8
8.2
48.8
6.6
1.7
1.0
0.5
4.0
10.1
39.8
8.8
7.3
37.3
8.4
1.8
1.2
2.7
6.8
10.4
4.7
9.5
8.0
35.7
8.0
2.5
1.7
5.7
6.9
6.7
10.4
9.8
8.1
38.6
8.4
2.5
1.5
2.4
8.4
5.5
11.1
10.4
8.6
43.0
8.9
2.4
1.4
-1.0
12.0
7.4
13.9
10.7
8.9
46.0
9.7
2.3
1.3
-4.0
18.5
Financial Summary
DB EPS (INR)
Reported EPS (INR)
DPS (INR)
BVPS (INR)
Asia
India
Food & Beverage
Reuters: TAGL.BO
Bloomberg: TGBL IN
Weighted average shares (m)
Average market cap (INRm)
Enterprise value (INRm)
Valuation Metrics
Buy
Price (15 Apr 14)
INR 152.75
Target Price
INR 200.00
52 Week range
INR 129.40 - 169.55
Market Cap (m)
INRm 94,460
USDm 1,567
EV/Sales (x)
EV/EBITDA (x)
EV/EBIT (x)
Income Statement (INRm)
Company Profile
Tata Global Beverages Limited, a Tata Group company, is
an Indian multinational non-alcoholic beverages company .
It is the world's second-largest manufacturer and
distributor of tea and a major producer of coffee.
Price Performance
180
160
140
Sales revenue
Gross profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest income(expense)
Associates/affiliates
Exceptionals/extraordinaries
Other pre-tax income/(expense)
Profit before tax
Income tax expense
Minorities
Other post-tax income/(expense)
Net profit
DB adjustments (including dilution)
DB Net profit
120
100
Cash Flow (INRm)
80
Apr 12Jul 12 Oct 12Jan 13Apr 13Jul 13 Oct 13Jan 14
Cash flow from operations
Net Capex
Free cash flow
Equity raised/(bought back)
Dividends paid
Net inc/(dec) in borrowings
Other investing/financing cash flows
Net cash flow
Change in working capital
BSE 30 (Rebased)
Margin Trends
11.0
10.0
9.0
Balance Sheet (INRm)
8.0
7.0
11
12
13
14E
EBITDA Margin
15E
16E
EBIT Margin
Growth & Profitability
12
10
8
6
4
2
0
12
10
8
6
4
2
0
11
12
13
14E
15E
Sales growth (LHS)
16E
ROE (RHS)
Solvency
20
8
6
4
2
0
-2
-4
-6
15
10
5
0
11
12
13
Net debt/equity (LHS)
14E
15E
16E
Cash and other liquid assets
Tangible fixed assets
Goodwill/intangible assets
Associates/investments
Other assets
Total assets
Interest bearing debt
Other liabilities
Total liabilities
Shareholders' equity
Minorities
Total shareholders' equity
Net debt
Key Company Metrics
Sales growth (%)
DB EPS growth (%)
EBITDA Margin (%)
EBIT Margin (%)
Payout ratio (%)
ROE (%)
Capex/sales (%)
Capex/depreciation (x)
Net debt/equity (%)
Net interest cover (x)
Source: Company data, Deutsche Bank estimates
Net interest cover (RHS)
Manoj Menon
+91 22 7180 4358
Page 2
[email protected]
16 April 2014
Food & Beverage
Investment thesis
Outlook
Tata Global Beverages (TGB) has transformed itself from just a tea player into a
global beverages player. It is now investing in ‘good-for-you’ beverages (Pepsi
JV). While TGB’s execution has the potential to improve (sub-optimal returns
on M&A), its incremental capital deployment in India and in high-growth
businesses (Starbucks JV) is positive. We believe that: (1) EBITDA margins
have bottomed out (c.600 bps decline over FY2008-13) and forecast an 11%
EBITDA CAGR over FY2014-16, and (2) the current market price reflects the fair
value of the current businesses only (Starbucks JV and other businesses are
available for free). We initiate with Buy and a target price of INR200 (30%
upside potential).
Valuation
We value TGB on a sum-of-the-parts basis and assign a target price of INR200.
We believe SOTP is the best methodology due to TGB’s operations in multiple
geographies with different growth profiles. We value the domestic tea
business at 15x EBITDA, at a 30% discount to Indian Consumer Staple peers
(we believe a discount is warranted due to the lower category attractiveness),
the international tea business at 10x EBITDA, the coffee business at 14x
EBITDA, and the Starbucks JV at 20x EBITDA. We attribute a 25% discount to
the market value of the investments it holds (in other Tata group companies)
and value the Himalayan mineral water business at a 25% discount to the
acquisition price. We attribute no value to NourishCo (JV with PepsiCo) due to
lack of data availability and limited management guidance on business plans.
Our target price is INR200, which offers 30% upside potential from the current
market price. The implied PE is 22x FY16E earnings for 17% earnings CAGR
over FY14-16E.
Risks

Commodity price inflation.

Black tea is a declining category in the UK and Canada.

Complex ownership structure.

Integration of acquisitions could pose significant challenges.

Little clarity on the Starbucks JV.

Frequent sale and purchase of assets and inconsistent brand
commentary.

Write-off of Activate business surprising.

Currency risk.
Page 3
16 April 2014
Food & Beverage
Table Of Contents
Snapshot ............................................................................. 5
Valuation summary ............................................................. 6
SOTP is the right valuation methodology due to the diversity in business ......... 6
Risks to our Buy thesis, estimates and valuation ................................................ 7
Building an integrated global beverage business................ 9
Transformational .................................................................................................. 9
Transformation from “Tea” to “Tea and coffee” to “Good-for-you beverages” 10
TGB has a history of inorganic growth globally ................................................. 11
MEMW acquisition (‘Himalayan’ mineral water) ............................................... 12
Aiming to grow ‘Himalayan’ into an international water brand ........................ 12
Starbucks JV – a star in the ascendant ............................. 13
Indian coffee retailing industry – poised for strong growth .............................. 14
Starbucks in China.............................................................................................. 15
Sizing up the missing links in TGB’s portfolio ................... 17
Opportunities in the tea business ....................................................................... 17
Opportunities in the coffee business.................................................................. 17
Starbucks in India has huge potential ................................................................ 17
Water business – Nourishco, Himalayan – categories for the future ................ 18
Overview of global hot drinks, tea, coffee, water ............. 19
Global perspective .............................................................................................. 19
Takeaways from market share data ................................................................... 22
Coffee continues to lead tea.............................................. 23
Tea has lower margins than coffee .................................................................... 23
Ex-Asia Pacific, growth is all in coffee ............................................................... 23
Tea business ...................................................................... 25
The three core markets for the tea business for TGB are India, UK and Canada
............................................................................................................................ 31
Coffee business ................................................................. 34
TGB’s position in coffee ..................................................................................... 35
Pod business in North America is the key to the future .................................... 36
Water business .................................................................. 40
NourishCo Beverages ......................................................................................... 44
Activate – a niche product in the US.................................................................. 44
Himalayan natural mineral water – A unique product of its kind ...................... 45
Financials and valuation .................................................... 46
SOTP is the right valuation methodology due to the diversity in business ....... 46
Key assumptions ................................................................................................ 47
Return on equity appears low ............................................................................ 50
Management profile ........................................................................................... 54
Page 4
16 April 2014
Food & Beverage
Snapshot
Figure 1: Company snapshot.
Geography
Business
Market Position
% Approx
Revenue share
(%)
Comments
Tea
Top-2, c22% mkt
share
31
Number 2 branded tea player in India behind Hindustan Unilever
21
Number 2 branded tea player in the UK behind Unilever
India
UK
Tea
Top-2,
US
Coffee
c3% Market share
Canada
15 Eight O’Clock coffee is one of the leading brands in the US. The recent
tie-up with GMCR will be a key driver for growth
Tea/Coffee
12
Leading black tea player
Tea
11
Leading player in black tea and value-added tea. South African
business includes value-added Rooibos tea, Russian brand – Grand,
etc.
International – incl.
South Africa, Australia,
Russia, etc.
India
Coffee
Branded coffee business is a duopoly with Nestle and HUL
dominating. Tata coffee has tried to enter branded business in the
past with limited success.
India
Water
25% of natural
mineral water market
1 Himalayan mineral water is one of the premium natural mineral water
brands in India
India
Starbucks JV
42 out of c2000
Stores
Starbucks JV started in 2012 in India. It is a 50:50 JV between TGB
and Starbucks for coffee shops in India
India
Pepsi JV
The two brands – Tata Gluco Plus and Tata Water Plus – are currently
being test-marketed in two states. The national launch of the brands
could happen soon.
India
MOU with
Starbucks for
supply of coffee
The company has an MOU with Starbucks for the supply of coffee for
its South East Asian operations.
Others
Water
As part of the JV agreement, Himalayan mineral water would be
retailed in all the Starbucks stores in Asia. The company started
exporting mineral water to Singapore last year.
Others
Plantation
9
The company exports tea, coffee, pepper, etc.
Source: Deutsche Bank, company data
Figure 2: Geographical sales split (INRm)
Geographical breakup
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
India
10,125
11,464
15,082
16,981
17,766
19,925
23,090
25,512
28,335
31,470
UK
13,267
13,902
12,394
13,834
13,578
14,760
15,471
16,425
16,355
17,009
USA & Canada
11,722
12,823
14,467
17,685
16,542
17,589
19,937
20,842
21,831
23,204
5,135
4,908
6,536
9,330
11,938
13,578
14,205
14,822
15,345
16,233
40,249
43,096
48,479
57,830
59,824
65,853
72,703
77,602
81,866
87,917
Rest of the world
Total revenue
% of Total
India
25.2
26.6
31.1
29.4
29.7
30.3
31.8
32.9
34.6
35.8
UK
33.0
32.3
25.6
23.9
22.7
22.4
21.3
21.2
20.0
19.3
USA & Canada
29.1
29.8
29.8
30.6
27.7
26.7
27.4
26.9
26.7
26.4
Rest of the world
12.8
11.4
13.5
16.1
20.0
20.6
19.5
19.1
18.7
18.5
Growth YoY (%)
India
13.2
31.6
12.6
4.6
12.2
15.9
10.5
11.1
11.1
UK
4.8
(10.8)
11.6
(1.8)
8.7
4.8
6.2
(0.4)
4.0
USA & Canada
9.4
12.8
22.2
(6.5)
6.3
13.3
4.5
4.7
6.3
(4.4)
33.2
42.7
28.0
13.7
4.6
4.3
3.5
5.8
Rest of the world
Source: Deutsche Bank, Company estimates
Page 5
16 April 2014
Food & Beverage
Valuation summary
SOTP is the right valuation methodology due to the
diversity in business
We value TGB on an SOTP basis and assign a target price of INR200/shr. We
believe SOTP is the best methodology, due to its operations in multiple
geographies with different growth profiles. We have valued the domestic tea
(discount is warranted due to the lower category attractiveness), international
tea business at 10x EBITDA, Coffee business at 14x EBITDA, Starbucks JV at
20x EBITDA. The coffee business has better growth profile (entry into pods is
the primary reason) and hence we argue a higher multiple for coffee business.
We have attributed a 25% discount to the market value of investments it holds
(in other Tata group companies) and have valued the Himalayan mineral water
business at the acquisition price. We attribute no value for NourishCo (JV with
PepsiCo) due to a lack of data availability and limited management guidance
on business plans. Our target price is INR200, which offers 30% upside
potential from the current market price. The implied PE is 22x FY16e earnings
for 17% earnings CAGR over FY14-16e.
Figure 3: SOTP valuation, target of INR200 (30% potential upside)
Business
Valuation methodology EBITDA (INRm)
India Tea business
EBITDA multiple
International Tea Business
Coffee Business (57%
ownership)*
Multiple (x)
Investments
Himalayan mineral water
% of overall EV
(%)
2,697
15
40,462
65
33
EBITDA multiple
2,582
10
25,817
42
21
EBITDA multiple
2,073*
14
29,026
47
24
95,305
154
78
Extant Business Value
Starbucks JV
EV (INRm) Per share value
EBITDA multiple**
18,540
30
15
25% discount to market
value of INR5,947m
4,460
7
4
25% discount to
purchase price of
INR4,247m
3,185
5
3
NourishCo (Pepsi JV)
EV
0
0
0
121,490
197
100
Less: Net debt
Equity value
1,334
120,156
# of shares (m)
618
Price per share (INR)
194
Target Price (INR, Rounded off)
200
Source: Deutsche Bank. * Only 57% of Coffee business EBITDA is used for calculations, Starbucks valuation explained below.
Starbucks JV – We have valued Starbucks JV at the potential opportunity
which this business can capture in 10 years discounted to present value (refer
to Figure 11 for detailed valuation).
Coffee business – The coffee business in India, the US and Canada is owned
only 57% by TGBL. We value the coffee business at 14x EBITDA.
Page 6
16 April 2014
Food & Beverage
Tea business – The tea business has very different growth rates in India vs. its
growth rates in UK/Canada/Australia. We believe EBITDA of 15x is the right
way to value the domestic business where TGBL is the second-largest player
and an EBITDA of 10x for the international business where although TGBL is
the number one (Canada) or 2 (UK), the growth rates are significantly lower
than the Indian business.
Water business – The water business, although a very promising business,
currently has significant challenges. We therefore do not ascribe any value to
the water business. We await further clarity on the business plans and the all
India launch plan for Tata water plus and Tata Gluco plus. We believe there is a
possible upside from the Himalayan water business as well considering the tieup with Starbucks for retailing branded water in their South Asian outlets. We
await further management clarity on the tie-up details before assigning any
value to the business. The price paid by TGB for acquiring Mount Everest
Mineral water (the erstwhile owner of Himalayan brand) was INR4,247m. For
our valuation, we have applied a 25% discount to the purchase price.
Investments – The company has significant equity investments in Tata group
companies. The market value of these listed investments is INR5,947m. While
we do not foresee its liquidation in the near future, the sale of investments in
Tata consultancy services in FY13 shows the intent of management to
liquidate investments when in need of capital. We assign a 25% holding
company discount to this investment for its valuation.
Risks to our Buy thesis, estimates and valuation
Commodity price inflation
TGB has significant exposure to tea and coffee prices. Any unusual spike in
prices with an inability to pass on the price increase could be a significant risk
to margins.
Black tea is a declining category in the UK and Canada
Black tea is the biggest sub-category within the tea business in the UK and
Canada. It has been on a declining trend. The company is trying to diversify,
however, with limited success.
Complex ownership structure makes it difficult to attribute share of profits for
TGB shareholders
TGB owns 88.65% stake in the UK-based company Tata Global Beverages
Group Ltd. This is the holding company for all international acquired
businesses – Tetley (100%), Joekels South Africa (51%), Good Earth (100%),
and Bjets (49.3%). TGB’s stake in Tata coffee is 57.48% which in turn owns
Eight O’Clock Coffee (100%) and Activate (47.3%). TGB has 50% ownership in
the two JV’s – Starbucks and Nourishco. TGB’s ownership in Mount Everest
mineral water (Himalayan Brand) was 50.7% (it now plans to merge it with
itself). Its investments in plantation business are just under 50% and hence not
consolidated – Amalgamated Plantations Pvt. Ltd India (49.66%) Estate
Management Services Pvt. Ltd. Sri Lanka (49.0%) and Kanan Devan Hills
Plantation Co. Pvt. Ltd India (28.52%). The China tea extraction business
Zhejiang Tata Tea Extraction Company Ltd also is 70% owned by TGB. Such a
complex structure makes it difficult to estimate the earnings attributable only
to TGB shareholders.
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Food & Beverage
Integration of acquisitions could pose significant challenges
Integration of the various acquired business in various different geographies
could pose significant challenges due to the diversity. Synergistic benefits
could take longer than anticipated.
Little clarity on Starbucks JV
There is little clarity available on the Starbucks JV. We do not know the terms
and conditions with respect to royalty rates – current and in the future – and
fixed charges if any. The duration of the current agreement is also not
available. Any increase in royalty rates or change in exclusivity agreement
could be a significant risk for TGB shareholders.
Frequent sale and purchase of assets and inconsistent brand commentary

Glaceau: In August’ 2006, TGB (Tata Tea then) purchased US health
drinks group Energy Brands, maker of Glaceau, for USD677m (EV of
USD2.2bn) in the largest overseas acquisition by an Indian company at
the time. The chairman of Tata Tea said at that time that he was
"hopeful" Tata would raise its stake. TGB bought 25% and 5% was
bought by Tata Sons (promoter for TGB). TGB therefore would have
paid USD564m. Then in May 2007, TGB sold off its stake to Coca Cola
at an EV of USD4.2bn. TGB’s 25% stake would be valued at
USD1.05bn making a profit of USD, c.USD436m.

Second, the write-off of Activate (Rising beverage LLC) itself is a
surprising move. The asset was written off within about two years of
purchase.

The company also launched a non-carbonated drink T!ON in India in
Tamil Nadu. The company mentioned that “consumer acceptance has
been very good with T!ON having achieved a value share of 5% of the
non-carbonated market.” The brand was discontinued soon after.
Write-off of Activate business surprising
Activate was a US-based performance beverage and bottled water brand in
which the vitamins are stored in the cap and released as and when the bottle is
opened, which preserves the efficacy of the product. It was initially mentioned
by the company as a niche category with strong growth prospects in the US
with a patented technology. Within two quarters of mentioning it was a strong
opportunity, the asset was written off.
Currency
With operations in more than 10 countries with multiple currency exposure,
TGB requires efficient currency risk management. Moreover, as it operates in
mature categories in many markets, any adverse movement in cross-currency
can potentially result in short-term impact on profits (for example, it procures
black tea from Kenya denominated in USD and sells it in the UK market in
GBP. Any depreciation of GBP versus USD in the short term can hurt profits as
the pricing agreements with retailers in the UK are renegotiated periodically
only).
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16 April 2014
Food & Beverage
Building an integrated
global beverage business
Transformational
TGB, the global #2 player in tea, is transforming itself into a global beverages
play through its many M&As in key markets (US, UK, Canada, Russia, etc.):
(1) the Tetley deal in 2000 (value GBP271m), whose turnover was 3x that of
TGB, (2) specialty tea brands Good Earth in 2005, (3) Eight O’Clock Coffee
(through subsidiary Tata Coffee) in 2006, and (4) in 2007/08, it briefly owned a
30% stake in the Glaceau brand in US (before Coca Cola acquired Glaceau).
The evolution into a true global player started in 2000 with the audacious
acquisition of Tetley. TGB reported turnover of US$1.4bn in FY13 and is the
second-largest player in tea in the world. The group maintains a focus on
consumer brands; more than 90% of turnover is from branded products (it
partly divested plantations business in 2007). TGB has a presence in over 70
countries.
Figure 4: Tata Global Beverages evolution timeline
Source: Company data, Deutsche Bank
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16 April 2014
Food & Beverage
During the past decade, the company reduced its reliance on the domestic
market (Indian operations presently contribute 30% of total turnover) and
strategically diversified into segments like coffee and other beverage brands. In
FY, ~94% of the consolidated sales came from the tea business, but it has
improved to 73% in FY13, underpinning its successful diversification strategy.
Figure 5: TGB – product category-wise sales (FY06)
Product category wise sales (FY06)
Figure 6: TGB – product category-wise sales (FY13)
Product category wise sales (FY13)
Others
Coffee 2%
4%
Others
2%
Coffee
25%
Tea
73%
Tea
94%
Figure 7: TGB – region-wise sales distribution (FY13)
Region-wise sales (FY13)
Others and non
branded
11%
Canada, America
and Australia
27%
South Asia
30%
Europe, Middle
East and Africa
32%
Transformation from “Tea” to “Tea and coffee” to “Goodfor-you beverages”
TGB’s is a global beverages player with 90% of its sales from branded
consumer products and 70% of its sales from outside India. TGB is essentially
present in the hot drinks category with a strong presence in tea – it is the
global number 2 player – and a meaningful presence in coffee, global number –
the number 18 player. TGB’s biggest business is tea (70%) followed by coffee
(20%). The key geographies for TGB are India (Tata Tea, Tetley); UK (Tetley)
and the US/Canada (Eight O’Clock).
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Food & Beverage
TGB has a history of inorganic growth globally
Figure 8: TGB’s major acquisitions
Acquired company
Mount
Water
Everest
Country
Mineral India
Stake acquired
Year
Acquired 50.07% stake in MEMW in a phased manner
(Jun'07 to May'12) 2,462
Rising
Beverages
LLC USA
(manufactures vitamin and
flavour enhanced water
under the Activate brand)
Initially acquired 31% stake in Oct-10 and gradually Oct-10
increased stake to 49.58%
Grand
Initially TGB along with European Bank for
Reconstruction (EBRD) and Development acquired
33.2% and 17.8% stake resp. TGB purchased remaining
49% stake in Aug-12
Vitax
and
trademarks
Russia
Flosana Poland
Deal value (INRm)
1,641
33.2% stake in
Mar-09
and
additional
49%
stake in Aug-12
Apr-07
382
Energy Brand Inc
USA
Tata Group acquired 30% stake (TGB – 25%; Tata Sons- Acquired in Oct-06; Acquired at £307m
Sold
stake
in and later sold at
5%)
profit
(net
of
Oct’07
acquisition cost) of
INR16bn
Joekels Tea Packers
South Africa
33.3%
Sep-06
Eight O' Clock Coffee
US
100% (wholly-owned)
Jun-06
10,150
JEMCA
Czech
Republic
Assets: intangible and tangible
May-06
954
Good Earth Corporation & US
Fmali Herb Inc
100% (wholly-owned)
Oct-05
1,356
Tetley group
100% (wholly-owned)
Feb-00
£271m
UK
TGB, the global #2 player in tea is transforming itself into a global beverages
play through its many M&As in key markets (the US, the UK, Canada, Russia,
etc.). TGB has also successfully exited from acquired business like Energy
Brands Inc (EBI). TGB, along with Tata Sons, acquired a stake in EBI (TGB –
25%; Tata Sons – 5%) in a deal valued at £307m in Oct-06. When Coca Cola
offered to acquire EBI, Tata Group, being a minority shareholder in EBI,
decided to sell its EBI stake to the Coca Cola in Oct’07 (at a profit of INR16bn).
We believe the past success of TGB’s strategy to become a market leader
worldwide through acquisitions and mergers can be replicated to gain larger
market shares in geographies where the company currently has low market
shares or virtually no presence. We highlight two instances where the
company entered into JVs with global players to strengthen its market
leadership positioning.
TGB entered into a JV with PepsiCo (50:50) and forayed into the new category
nutritious beverage space and also tied up with Starbucks under Tata
Starbucks (50:50 JV) to launch cafe outlets in India. Within a short span of
time (18 months) Tata Starbucks had expanded the number of stores to 42 (as
of Mar’14). We believe that TGB has also plans to promote Mount Everest
Mineral Water (MEMW) as an international brand through Starbucks outlets (it
has already launched MEMW brand in Starbucks Singapore).
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Food & Beverage
Figure 9: TGB’s JVs with major global players
JVs
Country
Purpose
2012
Joint venture with Starbucks, under Tata Starbucks Ltd India
Coffee and tea, establishment of Starbucks Café outlets
2010
Joint venture
Beverages
Developing non-carbonated “good-for-you” and ready-to-drink
beverages. Launched Tata Gluco Plus and Tata Water Plus in
2012
FY08
Zhejiang Tata Tea Extraction
with
PepsiCo,
named
NourishCo India
China
TGB entered into a JV with the Zhejiang Tea Group, China for
setting up Green Tea extracts unit in China. TGB's stake – 70%
MEMW acquisition (‘Himalayan’ mineral water)
TGB acquired c.26% stake in Mount Everest Mineral Water (MEMW) in 2007 –
subsequently increasing its stake to 31.73% to 50.07% in FY13. It is in the
process of merging MEMW with itself, indicating its belief in the Himalayan
brand and the growth opportunities in the mineral water business. We
estimate the company may account additional goodwill to the tune of
~INR3.5bn and 4% equity dilution (TGB will issue 25m shares to the
shareholders of MEMW) post-merger.
Figure 10: TGB has gradually increased stake in MEMW since Jun 2007 to 50.07%
Stakes
Cumulative Description
purchased acquired stake
in MENW
Year
Cumulative
Cumulative
Yearly
Purchased at
no. of shares investment
investment
avg. price
purchased (m) made (INRm) made (INRm) (INR/share)
FY08
31.73%
31.73%
Acquired 10.76% from promoters and
another 20.97% through open offer and
preferential allotment @ 140/share. Open
offer closing date -Nov 14, 2007
10.79
1,543
1,543
143
FY09
4.26%
35.99%
Purchased additional 4.26% stake from the
market
12.24
1,715
172
119
FY10
4.93%
40.92%
Purchased additional 4.93% stake from the
market
13.91
1,846
131
78
Mar-12
4.17%
45.09%
Acquired 4.17% stake from the erstwhile
promoters INR198 (at 87% premium to
MENW price)
15.33
2,127
281
198
May-12
4.98%
50.07%
Acquired additional 4.98% stake on exercise
of a put option by the erstwhile promoters of
MEMW at INR198/share (at 99% premium to
MENW price)
17.02
2,462
335
198
May-13
TGB announced the merger of MEMW with
itself in a ratio of 3 shares of TGB (face value
of INR1/share) for every 4 shares of MEMW
(face value of INR10/share)
Aiming to grow ‘Himalayan’ into an international water
brand

Management believes there is significant potential in the ‘Himalayan’
brand and that it has won several new accounts in India as well as
making its first global foray through Starbucks in Singapore.

The company claims that ‘Himalayan’ is the only natural mineral water
from India that is internationally accredited.

According to the company, ‘Himalayan’ is targeting to increase
revenue to INR2bn from INR200m and the company is working
towards improving the growth rate of ~20%.
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16 April 2014
Food & Beverage
Starbucks JV – a star in the
ascendant
Tata Starbucks JV, which was formed in FY2013, owns and operates
Starbucks stores in India. In the first year alone, the JV opened 12 stores
across Mumbai and Delhi. As of March 2014, the company had opened 42
stores in four cities – Mumbai, Delhi, Pune and Bangalore. The JV will also sell
Himalayan water and Tata Tazo Tea in its outlets. While we believe this JV is a
great addition to TGB’s business, the details of the agreement between
Starbucks and TGB have not been made public. However, Starbucks’ global
chief Howard Schultz had mentioned that the company was looking at opening
“a thousand stores in India in not so distant future”.
We have tried to evaluate the business model assuming 300 stores in ten
years. We believe, our 300 stores addition for Starbucks in India in 10 years is
conservative. Figure 12 lists the ramp-up of various food retailers/coffee chains
in India, illustrating that reaching 300 stores in 10 years should be fairly easy.
Within 18 months, Starbucks India has already opened 42 stores, which is one
of the fastest ramp-ups for Starbucks globally. The largest coffee chain in
India, Cafe Coffee Day already has 1500 stores in c.20 years and is adding 200
stores per annum; Domino's is adding c.150 per annum on a base of c700.
We also give a valuation sensitivity analysis on the company’s EBITDA
margins. We have factored in 10% SSSg annually for Starbucks over the next
10 years. Cafe Coffee Day had a same store growth of >15% over the last 10
years, Domino's SSG over last three / five /seven / ten years are 28% / 22% /
22% / 25%. Starbucks has a clear premium positioning in India where it does
not have any meaningful competition. Typical inflation in food/beverage retail
in the past has been a minimum of 6%, and hence a 10% SSG implying a 4%
footfall growth is achievable.
Figure 11: Starbucks India JV valuation for TGB
Café Coffee Day – current sales per annum for
a 700 sq ft store
INRm
15
Starbucks revenues per store in 2023 (current
sales INR40m; implies c.10% CAGR)
INRm
100
Starbucks EBITDA margin
%
15
20
25
30
35
40
INRm
15
20
25
30
35
40
EBITDA multiple
x
20
20
20
20
20
20
Number of stores
#
300
300
300
300
300
300
Starbucks EV
INRm
90000
120000
150000
180000
210000
240000
Tata Global share (50%)
INRm
45000
60000
75000
90000
105000
120000
Value per share for Tata Global
INR
73
97
121
145
169
194
Discounted value per share @ 12% CoE
INR
23
31
39
47
55
62
Starbucks EBITDA
Source: Deutsche Bank estimates
The consumer sector EBITDA multiple (including Staples) is 21x one-year
forward and hence we believe 20X multiple for a start-up which is ramping up
well is reasonable. Starbucks in China with a similar premium positioning has
c.35% EBITDA margins. Domino's in India has a steady state EBITDA margin
of >20%.
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Food & Beverage
We believe Starbucks exemplifies TGB’s push to capital deployment in highergrowth businesses. Within 18 months, Starbucks India has opened 42 stores,
which is probably one of the fastest ramp-ups for Starbucks globally. This
business has the potential to become a significant value driver for TGB. There
is also a possibility of this partnership’s being extended further in the future for
example, the export of coffee beans from TGB (through its subsidiary Tata
Coffee) for Starbucks for its Asia operations, while Himalayan water could also
benefit from Starbucks’ global reach.
Indian coffee retailing industry – poised for strong growth
Figure 12: Faster ramp-up by Café Coffee Day, Dominos and Yum in India and
Starbucks in China.
QSR chain
Number of stores currently
Years of existence (Approx Yrs)
Starbucks China
1100
13
Café Coffee Day India
1500
20
Dominos India
700
20
Barista India
200
15
Costa Coffee India
119
9
Dunlin Donuts India
21
2
Coffee Bean and Tea
Leaf India
25
5
Yum (India Division)
730
20
Source: Deutsche Bank, Company data
According to industry reports, coffee retailing in India is estimated to have
been c.$250m as of FY2013. Industry reports also suggest that this market is
expected to double to $450m by 2017. From about 800 outlets in 2008, the
total number of coffee retailing stores in India has grown to c.2000 stores now,
having added c.250 coffee outlets a year over the past five years. The key
players are Café Coffee Day, Barista, Starbucks, Dunkin Donuts, Gloria Jean
and Costa Coffee. Café Coffee Day is the largest retailer in India with more
than 1500 outlets. Barista Lavassa is the second biggest with c.200 stores.
Café Coffee Day
The biggest player is Café Coffee Day (CCD) with c.1500 outlets. CCD is
already present in 200 cities across 28 states. CCD is part of Amalgamated
Bean Coffee Trading Company Limited, the second largest coffee estate
ownership in Asia which gives them access to good quality coffee beans (and
likely cost benefits in sourcing). The company plans to reach 2000 outlets in
the near term. In 2010, three private equity firms acquired a 25% stake for
USD200m (industry reports).
Barista Lavazza
Barista Coffee Co. Ltd is India’s second largest organized cafe chain with 200
outlets. While the company claims to launch 40-45 outlets a year in the next
two-three years, we doubt if the company would actually execute considering
its track record. The company had 225 stores in 2010 and in the past three
years, has net closed stores. In 2007 the company had 180 stores. Therefore
there has been a net addition of only about 20 stores in the past six years. The
business model looks stressed, which is also indicated by the three ownership
changes since its inception. Media reports suggest that Lavazza may be
looking to exit the business.
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Food & Beverage
Barista was established in February 2000 by the Barista Coffee Company
Limited. A 34.3% equity stake was sold to Tata Coffee in 2001 and the
remaining 65% stake was bought by Sterling Group in 2004. Later, Tata sold
off its stake to Sterling group. In 2007 Sterling group sold Barista to Lavazza
(an Italian manufacturer of coffee products).
Costa Coffee
The third company that started operating in India is Costa Coffee. This is the
UK’s largest coffee brand, and the second largest in the world. It entered India
in September 2005 through an exclusive franchisee tie-up with Devyani
International Ltd.
The brand has a presence in all the major cities of the country including outlets
in Mumbai, Bengaluru, Delhi, Gurgaon, Noida, Pune, Agra and Jaipur. The
company has started venturing into cities outside of metros. In January this
year, Costa opened its 119th store in Kochi.
Dunkin Donuts
Dunkin Donuts has opened 21 stores across Delhi, Chandigarh, Ludhiana,
Dehradun, etc. The company plans to enter Mumbai in FY2015. The company
plans to open ten more stores in FY2014 and at least 100 stores by FY2017.
Jubilant Foodworks had announced its partnership with Dunkin Donuts in
2011.
Gloria Jean
Gloria Jean is an Australia-based international coffee retailing chain. It has
around 18 stores in India across Mumbai, Delhi, Pune, Bangalore and Chennai.
The company plans to open 30-40 stores a year. In 2011, according to media
reports, Tony White, its regional head, had indicated plans to increase the
number of stores to 200 by 2014.
Coffee Bean And Tea Leaf
Coffee Bean And Tea Leaf is a California-based coffee retailer. It was launched
in 2008 and follows both company-owned and franchisee-based models. There
are about 25 stores in India across Mumbai, Bangalore, Kolkata, Delhi,
Gurgaon, Chandigarh, Pune, etc.
Starbucks in China
Starbucks has been very successful in China. In a predominantly tea-drinking
country, Starbucks has been able to successfully ramp-up its presence over the
past 13 years, opening about 1100 stores. Starbucks is the market leader in
China and has a 60% market share. It aims to open 1500 stores in the near
future.
Starbucks has adapted its business model for China. It is perceived as a
premium brand in China and holding a cup of Starbucks is considered a status
symbol in China. It has customized its menu to suit local consumers. It has
introduced beverages with local tea-based ingredients, added fruit flavours,
etc. that are very specific to China. At the same time, Starbucks has focused
on bigger stores so as to enhance customer experience in China. Starbucks
realized that Chinese consumers value space and usually enter the stores in
groups; therefore the stores in China are usually larger in size compared to
those in the US. In addition, Starbucks has tried to tap the post-lunch coffee
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Food & Beverage
consumption habit in China. Starbucks also allows licensed stores (franchisee
model) where it receives net contributions, which has helped the faster roll-out
of stores. The result is that Starbucks in China makes an EBITDA margin of
>35%, much higher than in the US at c.20%.
We believe the company’s ability to understand the market – leveraging a
globally strong brand with localized offerings – which has made it so
successful in China, will also be utilized in India. We also believe that its
pricing premium in India will result in higher-than-average EBITDA margins. In
our base-case valuation, we assume a 15% EBITDA margin. We also provide
sensitivity if it is able to replicate the EBITDA margins as in China (c.35%).
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Sizing up the missing links
in TGB’s portfolio
Opportunities in the tea business

Geographically, at the moment the Middle East, Africa and Latin
America make no meaningful contribution to TGB’s branded business
revenue. Several markets in these regions have significant tea markets
untapped by TGB.

In Chile, the main tea-drinking country in Latin America, TGB has
entered into a distribution agreement with a local distributor. We
believe this could just be for testing waters in that region.

The South African business – Joekels (51% stake) – is a relatively small
business for TGB currently. Joekels owns the brand “Laager Rooibos”.
Rooibos is a herbal tea form native to and widely consumed in South
Africa. TGB claims that the health benefits of rooibos are widely
known and appreciated and that is the reason why it is becoming
increasingly popular in Western Europe. We believe TGB’s purchase of
this business in 2011 was a step in the right direction, in that it added
a premium, fast-growing sub-category of tea to TGB’s portfolio.
Opportunities in the coffee business
Brazil and Russia are expected to lead coffee growth in absolute terms (please
see details in section on coffee – page 36) (Source: Euromonitor). India and
China are expected to deliver the highest growth rates (Source: Euromonitor).
TGB is virtually absent from three out of the four countries. In Russia, TGB
acquired a brand ‘Grand’ through which it sells both tea and coffee; however,
the size of the business is very small currently (c.3% of TGB’s consolidated
revenues). Brazil could be on TGB’s radar for inorganic growth opportunities.
Coffee sales in India and China are dominated by instant coffee, which is
Nestle’s forte. Nestle has market shares of 72% and 55% in the instant coffee
segment in China and India, respectively. Therefore, building a strong market
share in these countries organically would be extremely challenging.
Starbucks in India has huge potential
The Starbucks Tata JV could potentially add INR120bn EV to TGB within ten
years assuming 300 stores within ten years. Starbucks’ global chief Howard
Schultz had mentioned that the company was looking at opening “a thousand
stores in India in not so distant future”. If Starbucks succeeds in India, as
Starbucks has been able to grow in China, the upside could be immense.
Starbucks opened around 1100 stores in China in 13 years (vs. our assumption
of 300 stores in India in ten years).
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Water business – Nourishco, Himalayan – categories for
the future
TGB has smartly moved up from being a tea business player (including
plantations) to a branded tea and coffee business to “good-for-you” beverages.
A key cog in the wheel for this strategy is the value-added water business. All
three products – Tata Water Plus, Tata Gluco Plus and Himalayan are all niche
products. Tata Water Plus is a functional water brand fortified with zinc and
copper. Tata Gluco Plus is flavoured water with added glucose; it is available in
three flavours – lemon, orange and mango. Both products are very
competitively priced, almost on a par with other plain packaged drinking water
(INR20 for one litre). Both brands are in a test-marketing phase in two states –
Andhra Pradesh and Tamil Nadu.
Himalayan is a natural mineral water brand. It is bottled at source, with a plant
at the foothills of the Himalayas. It is priced at a 150% premium to normal
packaged drinking water. The company has recently launched a carbonated
range of Himalayan drinking water. It claims to be in the final stages of
launching a fruit-flavour-based product offering. The company’s existing
clientele includes five-star hotels, airlines, embassies, etc., and tie-ups with ‘A’
category retail outlets, modern retail (malls), multiplexes, hypermarts, fine-dine
restaurants, etc. Additionally, the tie-up with Nourishco will likely help the
brand utilize PepsiCo India’s distribution strength.
Figure 13: Transformation of TGB over the years
Tea, coffee, "other good for you"
beverages
Tea and coffee
Tea
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16 April 2014
Food & Beverage
Overview of global hot
drinks, tea, coffee, water
Global perspective
According to Euromonitor, the global hot drinks market is estimated to be
worth USD133bn per annum, of which 57% is coffee (USD76bn), 31% is tea
(USD41bn) and the remaining 12% (USD17bn) is other hot drinks including
malt and chocolates drinks, etc. Even at USD133bn, the hot drinks market
remains small compared to soft drinks at USD520bn and alcoholic drinks at
USD635bn. The global hot drinks market grew by 12.5% in CY12.
Figure 14: Global market size and split of hot drinks category.
Hot drinks
USD 133.1bn
Coffee
USD 75.8bn
Tea
USD 40.7bn
Others
USD 16.5bn
Source: Deutsche Bank, Euromonitor
Asia (China, India) and Western Europe (UK, Scandinavian countries) dominate
the hot drinks category, accounting for more than half of the category.
Split by share of throat
Hot drinks are still a major part of the global drinking culture. In terms of share
of throat, hot drinks account for almost one-third of global beverage volume
consumption. (excluding water). Figure 15 gives the breakdown of share of
throat between the four large categories – alcoholic drinks, hot drinks, drinking
milk products and soft drinks. We also provide the actual consumption (in
volume) split for all these geographies.
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Food & Beverage
Figure 15: Overall share of throat and region-wise volume share (2012)
Alcoholic Drinks
Hot Drinks
Drinking Milk Products
Soft Drinks
100%
60%
40%
Western
Europe
North
America
Middle East
and Africa
Latin
America
Asia Pacific
2012
2007
0%
Eastern
Europe
20%
Australasia
% Total RTD volum e
80%
The Middle East and Africa has the highest share of hot drinks, accounting for
nearly half of total consumption. Also, there seems to be an inverse
relationship between soft drinks’ and hot drinks’ share of throat, suggesting a
strong cultural biases towards one or the other.
Figure 16: Overall consumption still low in several key regions 2012
Alcoholic Drinks
Hot Drinks
Soft Drinks
2012 RTD volume per capita (litres)
700
600
500
400
300
200
100
0
Middle East Asia Pacific
and Africa
Latin
America
Eastern
Europe
Australasia
Western
Europe
North
America
We provide the share of tea, coffee sales in the various geographies. Apart
from Australasia and Western Europe, all the other markets are skewed
significantly towards either tea or coffee. Indeed, even in Western Europe, if
one were to separate out the UK (skewed towards tea), the balance region is
actually skewed towards coffee.
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Food & Beverage
Figure 17: Region-wise RTD volume shares (2012)
Coffee
Tea
Other Hot Drinks
% of total hot drinks RTD volume
100%
80%
60%
40%
20%
0%
Asia Pacific Australasia
Eastern
Europe
Latin
Middle East
America and Africa
North
America
Western
Europe
Figure 18: Region-wise hot drinks sales (2002)
2012 Value Sales
% CAGR 2007/12 (RHS)
45,000
14
40,000
12
35,000
10
% growth
30,000
25,000
8
20,000
6
15,000
4
10,000
2
5,000
0
0
Asia Pacific Western
Europe
Latin
America
North
America
Eastern
Europe
Middle Australasia
East and
Africa
In Figure 19 we give the market share details of the players in the global hot
drinks market. TGB’s market share in the global hot drinks market is 1.2% (on
retail sales).
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Food & Beverage
Figure 19: Global market share in hot drinks (in %)
Companies
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Nestlé SA
15.0
15.0
15.2
15.4
15.6
15.6
15.7
15.8
15.8
16.0
-
-
-
-
-
-
-
-
6.8
6.9
4.0
3.8
3.8
3.7
3.7
3.7
3.8
3.7
3.7
3.6
-
-
-
-
-
-
-
-
3.4
3.4
Green Mountain Coffee Roasters Inc
0.0
0.0
0.0
0.1
0.1
0.2
0.6
0.9
1.6
2.0
Tchibo GmbH
1.6
1.7
1.7
1.7
1.8
1.6
1.5
1.6
1.4
1.5
-
-
-
-
1.5
1.6
1.6
1.6
1.5
1.3
Associated British Foods Plc
1.3
1.3
1.2
1.3
1.3
1.3
1.2
1.2
1.2
1.3
Tata Global Beverages Ltd
1.2
1.1
1.2
1.2
1.2
1.1
1.2
1.2
1.2
1.2
Lavazza SpA, Luigi
1.3
1.2
1.2
1.2
1.3
1.3
1.2
1.2
1.1
1.1
Starbucks Corp
0.8
0.8
0.9
0.9
0.9
0.9
0.9
0.9
1.0
1.0
Kraft Foods Inc*
Sara Lee Corp
8.2
3.6
8.0
3.1
8.0
3.0
8.0
3.2
8.0
3.3
7.7
3.2
7.9
3.3
8.0
3.5
1.0
-
0.9
-
Mondelez International Inc *
Unilever Group
DE Master Blenders 1753 NV *
JM Smucker Co, The
Source: Euromonitor. Mondelez and DE master blenders need to be seen along with Kraft foods and Sara Lee respectively for Pre 2012 market share.
Takeaways from market share data
One noteworthy point is that among the top ten global hot drinks players,
apart from Unilever, ABF and Tata Global, none of the other companies –
including Nestle, Mondelez, GMCR, etc. – has a meaningful presence in tea.
However, Nestle and Starbucks seem to have shown some interest in the
premium tea segment recently.
Second, the only company that has significantly increased its market share is
GMCR – and its massive increase in market share in such a short span of time
has been because it has been able to capture the growth of the coffee pod
segment in North America. Even allowing for the fact that GMCR carried out
three acquisitions in 2009/2010, the increase in its market share has been
exceptional. The growth in developed markets has been primarily dominated
by pods; the growth in emerging markets has been due to conversion from
packaged tea to tea bags.
Third, the market is extremely fragmented with only Nestle as a clear market
leader with a double-digit share and an extremely long tail. The top ten players
have a combined market share of only 40%.
Fourth, the spin-offs of two beverage players DE Master Blenders (from Sara
Lee) and Mondelez (from Kraft Foods) has created two big focused beverage
players (splitting from their packaged foods businesses is allowing for a better
focus on their beverage businesses).
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Food & Beverage
Coffee continues to lead
tea
Tea has lower margins than coffee
A likely reason why most of the top players in the “hot drinks” category are
not present in tea is the low growth and lower margins for tea as a category as
compared to coffee. Traditionally, tea has remained a commodity business and
companies have found it difficult to add value and the premium tea segment
remains small. So, while tea remains the highest-selling hot beverage by
number of cups served by almost 2x, it still lags behind coffee in value terms.
Unlike coffee, tea is yet to see strong premiumisation trends. There is a clear
dominance of coffee in value terms within hot drinks. Not only is the value
higher than for tea, but it is also growing much faster.
Figure 20: Global retail value sales by category
Coffee
Tea
Other Hot Drinks
80,000
70,000
Sales (US$ mn)
60,000
50,000
40,000
30,000
20,000
10,000
0
2007
2008
2009
2010
2011
2012
Ex-Asia Pacific, growth is all in coffee
Incremental growth in the category (ex-Asia Pacific) is likely from coffee. in the
two charts below (Figures 21 and 22) we show the split of sales by region and
where the incremental growth is going to come from. The key takeaways are
as follows:
First, outside Asia Pacific, the incremental growth is going to be majorly
coffee.
Second, the growth in Asia Pacific tea is going to be led by China where
instant tea and green tea is expected to lead growth. Interestingly, none of the
top three tea players – Unilever, TGB and ADF – has a meaningful presence in
any of the two sub-categories.
Thirdly, even in the tea-dominated Asia pacific region, coffee growth is strong.
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Food & Beverage
Figure 21: Regional sales by category 2012
Coffee
Tea
Figure 22: Sales growth by category 2012-17
Other Hot Drinks
Coffee
35,000
Sales (US$ mn)
30,000
25,000
Sales (U S$ mn)
Tea
Other Hot Drinks
8,000
20,000
6,000
4,000
15,000
10,000
2,000
5,000
0
0
Western
Europe
N orth Middle East
Latin
America and Africa America
Eastern
Europe
Western
Europe
AustralasiaAsia Pacific
North Middle East
Latin
America and Africa America
Eastern
Europe
AustralasiaAsia Pacific
Figure 23: Ten largest markets account for nearly 60% of global sales
Geographie
s
2012 sales
%CAGR
2007/12
Largest category by TGB's presence
value
China
15,406.20
13.6
Tea
Small
US
14,231.80
9
Coffee
Yes
Japan
10,529.80
0.1
Coffee
No
Brazil
8,348.80
11.9
Coffee
No
Germany
8,012.50
4.6
Coffee
No
Russia
7,508.30
12.3
Coffee
Yes
France
4,633.90
5.2
Coffee
No
UK
3,538.30
4.8
Coffee
Small
Italy
3,028.40
7
Coffee
No
India
2,854.30
14.7
Tea
Yes
Figure 24: Hot drinks – highest value CAGR and lowest value CAGR
(2012/17)
Highest value CAGR 2012/17
TGB's presence
Canada
Yes
Pakistan
Yes
Colombia
No
India
Yes
Iran
No
Italy
No
Indonesia
No
Mexico
No
Lowest value CAGR 2012/17
TGB's presence
Taiwan
No
Ireland
Small
Finland
Small
Japan
No
Slovakia
No
Uzbekistan
No
Greece
No
Egypt
No
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16 April 2014
Food & Beverage
Tea business
Global perspective
Figure 25: Major tea markets, retail volume 2012 and growth 2011/2012
Tea 2012
US$40.7 bn
Black Tea
US$17.1 bn
Fruit/ Herbal Tea
US$6.2 bn
Green Tea
US$10.8 bn
Instant Tea
US$3.9 bn
Other Tea
US$2.8 bn
In tea, TGB faces tough competition from Unilever (#1, 11.7% share) and
Associated British Foods (#3, 2.8%). However, apart from the top three players,
all other players are local leaders and none of them has a strong multi-country
presence. Therefore the tea-consuming markets are quite fragmented, which is
not the case for coffee.
Figure 26: Market consolidation: coffee vs. tea (retail sales) 2012
Top 10 Company Combined Share
Private Label
Others
100
90
% value
80
70
60
50
40
30
20
10
0
Coffee
Tea
At the same time, there have not been many acquisitions done by the market
leader Unilever or other private equity investors, which we believe could create
further M&A opportunities for TGB in the absence of an aggressive buyer.
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Food & Beverage
Figure 27: Competition pyramid of the tea world
Unilever: Clear leadership with no immediate
challenger, mainly organic growth. Growing
interest in premium products.
TGBL and ABF: Eager to expand globally and
widening price points.
Orimi and Ito En: Limited geographical spread
but showing global ambition.
Others: including major Chinese companies:
Fragmented and many focusing on certain
regions and categories.
TGB is essentially a mass-market player and is trying to move up the value
chain by focusing more on premium offerings like green tea, herbal tea,
flavoured tea, etc.
Figure 28: Global tea market share (in %)
Companies
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Unilever Group
12.7
12.5
12.4
12.3
12.1
11.9
12.2
12.1
12.0
11.9
Tata Global Beverages Ltd
3.1
3.0
3.1
3.3
3.2
3.0
3.4
3.3
3.3
3.3
Associated British Foods Plc
2.9
2.9
2.9
3.0
3.0
2.9
2.9
2.9
2.9
3.0
Orimi Trade OOO
1.5
1.7
1.9
2.1
2.3
2.3
2.3
2.3
2.3
2.3
Ahmad Tea London Ltd
1.0
1.3
1.7
1.9
2.2
2.1
2.2
2.2
2.2
2.3
Teekanne GmbH & Co KG
2.3
2.2
2.1
2.1
2.1
1.9
1.8
1.7
1.6
1.7
Zhejiang Xiangpiaopiao Co Ltd
0.0
0.0
0.1
0.3
0.4
0.7
0.9
1.1
1.4
1.6
Guangdong Strong (Group) Co
Ltd
-
-
-
0.2
0.3
0.7
0.9
1.2
1.3
1.5
Ito En Ltd
2.3
2.1
1.9
1.8
1.9
2.1
2.0
1.9
1.8
1.5
Mai Kompanya OAO
0.8
0.9
1.0
1.0
1.3
1.2
1.3
1.4
1.4
1.4
Source: Euromonitor
Competition in the tea business
Unilever has market leadership in six continents and seems to be focusing only
on organic growth (absence of any meaningful acquisition in the sector, except
for the small acquisition of niche premium tea chain T2 with sales of USD57m
in 2013). Associated British Foods (ABF) and TGB are the two companies that
have global plans with the only difference being that TGB has had inorganic
growth whereas ABF has focused on organic growth. Ito En Ltd is the only
green tea player among the top tea players and it has stated its global
intentions towards its sales are reliant on its domestic business (Japan).
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The standard black tea business has seen sluggish growth; however, tea bags
have been growing fast in the emerging markets, while the pod business is
growing faster in the developed markets. At the same time, the top players
have been using premium variants like green tea, herbal tea, etc. to grow. The
prime example is the ‘Chai Latte’ (flavoured tea concentrate with steamed
milk) variant which has seen good success in Australia and all three players are
now present in that segment.
Figure 29: Unilever, TGB and ABF: world, percentage category share and
ranking 2012
Company
Unilever
Black
Black
standard tea specialty tea
Fruit/herbal
tea
Green tea
Instant tea
Other tea
19.8 (1)
13.2 (1)
7.5 (1)
3.3 (4)
3.0 (4)
1.9 (11)
TGB
7.1 (2)
1.9 (9)
0.9 (17)
0.5 (25)
0.1 (15)
0.5 (21)
ABF
0.6 (14)
11.5 (2)
2.4 (7)
0.7 (16)
0.3 (10)
0.1 (36)
China has the biggest upside in the tea category worldwide
Looking at global tea market share data, three Chinese companies stand out.
Zhejiang Xiangpiaopiao Co Ltd, Guangdong Strong (Group) Co Ltd, and
Zhejiang Dahaoda Food Co Ltd are the only three companies to have gained
significant market share. From having a combined market share of 0.1% in
2006, the three companies together now have a market share of 3.9%, which
is higher than for TGB (#2 player). What we find even more interesting is that
these companies are domestic companies and have virtually no export
business.
Figure 30: Major tea markets, retail volume 2012 and growth 2011/2012
Market (retail) volume 2012
800
12%
700
10%
600
000 tonnes
% growth 2011/2012 (RHS)
500
8%
6%
400
300
200
100
0
4%
2%
0%
-2%
China is not only the biggest market, it is also the fastest-growing market by
volume.
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Food & Beverage
Figure 31: Global tea value sales growth (2012-17)
2012-17 Absolute
Figure 32: Tea value sales growth by country (2012-17)
2012-17 CAGR % (RHS)
Absolute grow th U S$ mn
China
7,000
6
6,000
5
5,000
India
4
Pakistan
4,000
3
Iran
3,000
2
2,000
U SA
1
1,000
Rest of World
0
0
Asia
Pacific
Western
Europe
Latin
America
N orth
America
Eastern
Europe
Middle Australasia
East and
Africa
0
500
1,000
1,500
2,000
2,500
Absolute grow th US$ mn
Figure 33: Tea value growth segmentation (2012-2017)
Black Tea
Fruit/Herbal Tea
Green Tea
Instant Tea
Other Tea
100%
% absolute value growth
80%
60%
40%
20%
0%
China
India
Pakistan
Iran
US
RoW
Growth in China has largely been due to a boom in instant tea, where TGB has
a small presence globally. TGB’s business in China involves tea extraction,
which is a non-branded commodity operation. However, the global #3 player
ABF has started to expand its capacity in China and is fast moving ahead of
TGB.
TGB’s portfolio is over-reliant on the black tea market
Black tea accounts for more than two-thirds of TGB’s hot drink revenue. Black
tea as a category is a slow-growth/declining category and we believe the
company faces a significant risk of slower growth in the segment. Green tea
and instant tea are the fastest-growing sub-segments within tea. While ABF
has been able to grow market share well within the green tea segment, TGB
has not been able to capitalize the opportunity well.
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Food & Beverage
Figure 34: Unilever, TGB and ABF: world, percentage category share and
ranking 2012
Company
Unilever
Black
Black
Fruit/herbal
tea
Green tea
Instant tea
Other tea
19.8 (1)
13.2 (1)
7.5 (1)
3.3 (4)
3.0 (4)
1.9 (11)
TGB
7.1 (2)
1.9 (9)
0.9 (17)
0.5 (25)
0.1 (15)
0.5 (21)
ABF
0.6 (14)
11.5 (2)
2.4 (7)
0.7 (16)
0.3 (10)
0.1 (36)
Apart from Canada, TGB does not have a strong presence in green tea in the
strong green tea growth markets such as China, Pakistan, and Russia.
However, in India, TGB is pioneering the consumer habit change of green tea
consumption – it is the only tea player that is aggressively investing in green
tea brand-building (television commercials with celebrities, etc.).
Figure 35: Global tea category growth prospects 2012-2017 and TGB
percentage company share 2012
Absolute value growth 2012/2017
% CAGR 2012 - 2017 (RHS)
TGBL % company share (RHS)
2000
9%
1800
8%
1600
7%
US$ mn
1400
6%
1200
5%
1000
4%
800
3%
600
400
2%
200
1%
0%
0
Black
Black
Fruit/Herbal
tea
Green tea
Instant tea
Other tea
China is expected to account for half of the growth for tea category over 201217 (Source: Euromonitor). This growth is expected to be led by the instant tea
and green tea segments. So far TGB does not have a meaningful presence in
the branded tea segment in China. It appears that it does have the product in
place. Tetley’s Chai Latte was well received in Australia and can possibly be
launched in China as well. The instant tea segment in China is dominated by
local players. Interestingly, none of the top three global tea players has a
meaningful presence in China. Even Unilever is present mostly in the standard
black tea segment (a slow-growing segment in China). We believe China could
become the new battleground for all the major tea players.
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Food & Beverage
Figure 36: Global tea: major growth markets prospects, 2012-17
Absolute growth 2012/17
% CAGR 2012/17 (RHS)
4,500
10%
4,000
9%
3,500
8%
7%
US$ mn RSP
3,000
6%
2,500
5%
2,000
4%
1,500
3%
Iran
Indonesia
0%
US
0
Pakistan
1%
India
2%
500
China
1,000
Figure 37: Unilever, TGB and ABF: percentage market share in major tea
growth markets 2012
Country
China
Unilever
TGB
ABF
1.6
Pakistan
17.9
9.1
0.4
India
29.0
25.0
1.3
Indonesia
14.6
Iran
8.0
US
17.9
13.1
1.6
6.3
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Food & Beverage
Figure 38: China tea category growth prospects 2012-17 and Unilever
percentage company share 2012
US$ mn
% CAGR 2012 - 2017 (RHS)
Unilever % company share (RHS)
2000
40%
1500
30%
1000
20%
500
10%
0
0%
Black
Black
Fruit/Herbal
Standard Tea Speciality Tea
Tea
Green Tea
Instant Tea
Other Tea
The South African business – Joekels (51% stake) – is a relatively small
business for TGB currently. Joekels owns the brand “Laager Rooibos”. Rooibos
is a herbal tea form native to and widely consumed in South Africa. TGB claims
that the health benefits of rooibos are widely known and appreciated and that
is the reason why it is becoming increasingly popular in Western Europe. We
believe TGB’s purchase of this business in 2011 was a step in the right
direction, by adding a premium, fast-growing sub category of tea to its
portfolio.
The three core markets for the tea business for TGB are
India, UK and Canada
Figure 39: Tea business contribution for TGB
FY2008
Tea Business
revenue
Growth (%)
% of Total sales
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014E
FY2015E
FY2016E
59,061
61,958
FY2017E
34,070
37,676
43,818
44,767
47,668
52,899
56,219
3%
11%
16%
2%
6%
11%
6%
5%
5%
64,891
5%
79%
77%
75%
75%
72%
72%
72%
72%
71%
71%
Tea Business in India remains a cash cow
TGB has a strong c.21% market share in India and is the #2 player just behind
HUL (#1). The business has seen strong value growth for all the top three
players in India. TGB has been launching premium variants to aid up-trading
for the customer. The launching of green tea under the Tetley brand is a
testament to company’s strategy
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Figure 40: India: Top three tea companies' value sales 2012 and % YoY
growth 2011-2012
US$ mn rsp
Value sales 2012
% YoY growth 2011-2012 (RHS)
600
30%
500
25%
400
20%
300
15%
200
10%
100
5%
0%
0
Unilever Group
Wagh Bakri Ltd
Tea business in UK remains strong and competitive
TGB’s market share (Tetley brand) is close to that of Unilever (PG Tips). Like
India, even in the UK, the thrust is on value-added/premium tea including
redbush (Rooibios – from the South African business), green tea and herbal tea.
Overall, TGB’s market share is barely 2% lower than that of Unilever. However,
in the health and wellness and black tea market, TGB has a clear market lead
with 15% share, almost 5% ahead of Unilever.
Figure 41: UK: Top three tea companies' value sales 2012 and % YoY growth
2011-2012
Value sales 2012
% YoY growth 2011-2012 (RHS)
350
9%
8%
300
7%
US$ mn rsp
250
6%
200
5%
150
4%
3%
100
2%
50
1%
0
0%
Unilever Group
TGBL
ABF
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16 April 2014
Food & Beverage
Clear market leader in Canada
TGB has a 31% market share in the Canada tea market vs. Unilever’s 19%.
However, the market for black tea has drifted into a slow growth/declining
phase while the pod business is gaining strength. Therefore, to protect its turf,
TGB has also started focusing on the pod business and value-added tea. In
2012, TGB partnered with Kraft’s Tassimo pod system (T Disc) to make Tetley
available in their pods. Also, TGB has started to aggressively focus on herbal
teas in the geography.
Figure 42: Canada: Top three tea companies' value sales 2012 and % YoY
growth 2011/2012
US$ mn rsp
Value sales 2012
% YoY growth 2011-2012
200
8%
150
6%
100
4%
50
2%
0
0%
TGBL
Unilever
ABF
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Food & Beverage
Coffee business
Global perspective
Globally, coffee contributes about 57% to the hot drinks segment. Coffee is
broadly split into two sub-segments: fresh coffee and instant coffee.
Geographically, in the western, developed markets growth is led by pods,
Brazil and Russia lead the growth in the fresh coffee beans segment and India
and China lead the instant coffee segment. Compared to tea, the coffee market
is fairly consolidated with the top three companies accounting for a c.39%
market share. In tea, the top three players account for only an 18% market
share. Nestle dominates the coffee market due to its massive dominance in the
instant coffee segment and its market leadership in the pod segment.
Figure 43: Coffee business split.
TGB has a smaller global presence in coffee compared to its tea business. The
following chart gives the market shares in the global coffee market.
Figure 44: Market share in global coffee
Companies
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Nestlé SA
21.2
20.9
21.3
21.5
21.9
22.3
22.5
22.4
22.4
22.7
Mondelez
International Inc
-
-
-
-
-
-
-
-
10.7
10.8
DE Master Blenders
1753 NV
-
-
-
-
-
-
-
-
5.5
5.4
Green Mountain
Coffee Roasters Inc
0.0
0.0
0.1
0.1
0.2
0.4
1.0
1.5
2.8
3.4
Tchibo GmbH
2.9
3.0
2.9
3.0
3.1
2.8
2.7
2.7
2.5
2.5
-
-
-
-
2.5
2.8
2.7
2.7
2.6
2.3
Lavazza SpA, Luigi
2.2
2.1
2.1
2.1
2.2
2.2
2.1
2.0
1.9
1.9
Strauss/São Miguel
-
-
-
-
-
-
1.4
1.6
1.6
1.5
Strauss Group Ltd
-
-
2.2
2.7
3.1
3.0
1.6
1.6
1.4
1.5
Tata Global
Beverages Ltd (#20
Rank)
0
0
0.4
0.4
0.4
0.4
0.4
0.4
0.5
0.4
JM Smucker Co,
The
Source: Deutsche Bank, Euromonitor, Mondelez and DE Master Blenders market shares are post their split from Kraft/ Sara Lee respectively.
Page 34
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Food & Beverage
Figure 45 maps the market share of the top five players within different coffee
sub-segments.
Figure 45: Major companies: world, percentage category share and ranking
2011
Company
Fresh coffee beans
Ground coffee
pods
Standard fresh
ground coffee
Instant coffee
Nestlé
0.6 (17)
35.1 (1)
1.0 (15)
51.1 (1)
Kraft
5.5 (2)
8.1 (3)
12.0 (1)
16.1 (2)
Sara Lee
2.3 (7)
18.1 (2)
7.6 (2)
2 (4)
Strauss
1.1 (15)
5.1 (3)
1.5 (5)
Tchibo
3.1 (5)
3.9 (4)
2.5 (3)
1.0 (6)
TGB’s position in coffee
Geographically over reliant on highly competitive and mature developed
markets
In its coffee sales, TGB is heavily reliant on the USA, the UK, Canada and
Australia. However the market in these geographies is moving towards pods,
which TGB is trying to capture.
TGB’s branded coffee business is predominantly US-based fresh coffee
business through Eight O’ Clock (EOC), owned by its 57%-owned subsidiary
Tata Coffee. TGB is yet to make a significant breakthrough in branded coffee
outside the US. However, TGB has entered the pod segment, through a license
agreement with GMCR, which should help them cement their position in US.
Tata Coffee is also present in Canada and India. Tata Coffee is also a major raw
coffee exporter. TGB group has recently formed a JV with Starbucks for
opening Starbucks stores in India and supplying coffee for its South East Asian
business.
Within the coffee segment two-thirds of the global growth in value terms is
likely coming from fresh coffee while growth in the instant coffee segment will
likely be driven by India and China.
Brazil and Russia are expected to lead coffee growth in absolute terms
(Source: Euromonitor). India and China are expected to deliver the highest
growth rates (Source: Euromonitor). TGB is virtually absent from three out of
the four countries. In Russia TGB acquired a brand ‘Grand’ through which it
sells both tea and coffee; however, the size of the business is very small
currently (c.3% of TGB’s consolidated revenues). Brazil could be on TGB’s
radar for inorganic growth opportunities. Coffee sales in India and China are
dominated by instant coffee, which is Nestle’s forte. Nestle has market shares
of 72% and 55% in the instant coffee segment in China and India, respectively.
Therefore building a strong market share in these countries organically would
be extremely challenging.
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Food & Beverage
Figure 46: Major coffee growth markets, absolute growth 2011-2016
Absolute growth 2011/16
% CAGR 2011/2016
12
2,500
10
(US$ mn RSP)
2,000
8
1,500
6
1,000
4
500
2
0
India
Italy
Canada
South Korea
Mexico
China
France
US
Germany
Russia
Brazil
0
Pod business in North America is the key to the future
Pod beverage systems are growing in popularity in the developed world.
However, there is a significant difference between the way the US and
Western Europe markets are structured. Hence, while Western Europe is
dominated by Nestle through Nespresso, USA is dominated by GMCR and
neither company has been able to significantly dent the other company’s core
market share. Another fundamental difference between GMCR and Nestle is
that GMCR allows other companies to license and use its pod machines while
Nestle wants to keep its systems exclusive. GMCR’s market share gain in the
past several years is an indication of the changing trend towards the pod
system (with the exception of 2009 and 2010 when it made three acquisitions).
Coffee pods are more prominent in Western Europe, which accounts for about
two-thirds of global sales through pod systems. However, incremental growth
is likely driven by the US. Within the fresh coffee segment, the contribution of
pods in the US market is now >33% compared to c.12% in 2011.
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Food & Beverage
Figure 47: Most dynamic fresh ground coffee pod markets 2012/2017
% CAGR 2012-2017 (RHS)
40%
1500
30%
US$ mn
2000
1000
20%
500
10%
0%
0
TGB has entered into a license agreement with GMCR for Eight O’Clock and
Tetley pods. This agreement should provide growth opportunities for TGB
through GMCR pods. The coffee retail sales data seem to suggest that coffee
pods will remain the primary driver of value growth in developed markets for
the foreseeable future. However, we highlight that the bargaining power in
such arrangements lies more with a high market share pod system
manufacturer rather than with the coffee manufacturer.
If one looks at Nestlé’s coffee portfolio, its weakest link is the US, where it has
not been able to gain market share in the fresh coffee segment. However,
since the market there is shifting to pods, Nestle will remain aggressive in the
pod segment instead as the fresh coffee segment is shifting very rapidly to
pods. Nestle has a 5% market share in the pods segment well behind GMCR’s
56%. Nestlé’s pod system – Nespresso – does not allow other coffee players to
sell pods for its system which impacts TGB directly. If Nestle were to gain
market share in the US over GMCR in pod system sales, TGB’s incremental
growth could be affected.
Figure 48: Overview of major companies' percentage market shares in core
coffee markets 2011
US
Germany
Kraft
9.9
17.7
Nestle
2.2
6.2
9.7
Sara Lee
0.2
1.7
20.3
Tchibo
Brazil
12.9
Strauss
19.1
Japan
Russia
France
Italy
World
18.4
18.7
29.7
7.1
12.9
35.8
27.0
27.4
10.0
22.8
1.1
20.8
6.0
8.9
3.1
4.7
3.2
Non-pod, fresh coffee demand remains highly concentrated.
Four markets are expected to account for nearly 60% of the growth in “nonpod” fresh coffee demand over the next five years with Brazil accounting for
nearly a third of the demand. China is expected to lead growth in the instant
coffee segment.
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Food & Beverage
Figure 49: Fresh coffee forecasts sales by category 2012-17, top seven
markets by absolute growth
Fresh Coffee Beans
Fresh Ground Coffee Pods
Standard Fresh Ground Coffee
1,800
1,600
1,400
)
n
m1,200
$
S
1,000
U
(
s
e
l 800
a
S
600
400
200
0
-200
Brazil
US
Canada
Italy
Germany
Russia
Spain
Pod opportunity in tea remains relatively nascent.
The total tea pod market size is c.USD230m with sales mainly coming from
America and Western Europe. The fact that these markets already are big
coffee pod markets has made tea pods’ acceptance easier. The price
differential between normal coffee and coffee pod per cup for a consumer is
about 2.5x. The same differential between standard tea and tea pods is about
7x, the primary reason being low price for standard tea. The high differential
will likely result in slower conversions to tea pods as compared to coffee pods.
TGB has an alliance with Delta (Portugal distributor of Tetley) and GMCR to sell
Tetley tea pods. TGB has also partnered with Kraft’s Tassimo pod system (T
Disc) to make Tetley available on its pods in Canada.
Although there is an opportunity for TGB to market its own multi-beverage pod
systems in the US, the competition there is immense with GMCR, Nestle and
Starbucks already present – it is an extremely competitive market.
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Food & Beverage
Figure 50: Major tea pod markets: Off-trade sales and growth prospect
2012/17
US$ mn rsp 2012, fixed ex-rates, current prices
% CAGR 2012 - 2017 (RHS)
120
20%
18%
100
16%
14%
US$ mn
80
12%
10%
60
8%
40
6%
4%
20
2%
0%
Spain
Austria
France
Russia
Germany
Canada
Switzerland
UK
US
0
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16 April 2014
Food & Beverage
Water business
Bottled water leads all soft drinks categories in terms of total volume sales, but
ranks second to carbonated drinks in terms of value sales. The reason is the
significant presence of local brands, bulk sizes at relatively much lower prices
per litre in emerging markets and lower prices per unit for bottled water as
compared to carbonated drinks. The total global market size is 242bn litres,
massively dominated by still bottled water (82%). Bottled water accounts for a
15% of share of throat.
Figure 51: A breakup of bottled water segment by volume
Bottled Water
242 bn litres
Still Bottled Water 198 bn
litres
Carbonated Bottled Water
31 billion litres
Flavoured Bottled Water 8
bn litres
Functional Bottled Water 5
bn litres
Figure 52: Share of throat 2012
Alcoholic Drinks
Bottled Water
Hot Drinks
Carbonates
All Other Soft Drinks
100%
90%
80%
RTD Volume
70%
60%
50%
40%
30%
20%
10%
0%
2012
The positioning of bottled water is very different between developed and
emerging markets. In developed markets, bottled water is consumed for
Page 40
16 April 2014
Food & Beverage
single-serve convenience and not just for general everyday use. Therefore, the
positioning is on ‘healthy hydration’ rather than on just clean water, which is in
any case abundantly available. In emerging markets, bottled water is
considered a reliable source of clean water. That is the reason why the bottled
water business in emerging markets is more of a commodity business whereas
in developed markets, there is tremendous scope of branding, adding health
benefits to take the price per unit up. The data related to packaging also reflect
the divergence. While 75% of bottled water in developed markets is sold in
less than 2 litre packaging, in emerging markets it is less than 40%.
Effectively, more than 60% of the market in emerging markets is water sold in
bigger packs, which is more like a commodity business.
Figure 53: Off-trade volume per capita (2012)
Figure 54: Bottled water unit price 2012
Off-trade volume per capita (Litres)
Off-trade volume per capita (Litres)
Western Europe
Western Europe
N orth America
N orth America
Latin America
Latin America
Eastern Europe
Eastern Europe
Australasia
Australasia
Asia Pacific
Asia Pacific
Middle East and Africa
Middle East and Africa
0
20
40
60
80
100
0
20
40
60
80
100
In India, bottled water has grown at a 24.7% CAGR for the past five years,
driven largely by necessity for reliable supplies, access to clean water and the
availability of bulk packaging.
Figure 55: Top five off-trade volume growth markets (m litres) 2007/2012
Country
2007-12 (% growth)
2007-12 CAGR %
2007-12 absolute
China
84.2
13.0
11,691.7
Mexico
30.6
5.5
4,585.1
Indonesia
39.8
6.9
4,448.8
India
201.6
24.7
4,407.7
USA
10.1
1.9
2,419.4
Figure 56: Top five off-trade value growth markets (US$m – constant prices)
2007/2012
Country
2007-12 % growth
2007-12 CAGR %
2007-12 absolute
China
88.3
13.5
4,424.3
Japan
32.8
5.8
1,931.3
105.2
15.5
1,782.6
Mexico
47.4
8.1
1,763.5
Brazil
64.6
10.5
1,179.9
Argentina
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16 April 2014
Food & Beverage
We have wondered why Nestle, despite being a big player in the water
business and having positioned its water business on ‘health hydration’, has
not been focusing on functional water. We give below an extract from Nestle’s
CY2013 annual report –
“Nestle waters delivered growth in all three geographies, despite intense pricing
pressure in United States and Europe.... Nestle Pure Life remains our growth
engine particularly in emerging markets, consistently leading category growth.
Nestle waters trading operating margins increased by 50 basis points to 9.4%
due to the divisions growth and high level of efficiencies in manufacturing and
procurement.”
Key points from the above text:

Nestle Pure Life, still bottled water, is the fastest-growing brand and
not standalone functional water brands,

Margin expansion is not due to a premiumisation (shift to functional
water), rather, it is due to “efficiencies in manufacturing and
procurement”. There was a similar comment in the CY2012 annual
report as well.
The following graph tells the whole story. Still bottled water is not only much
larger in size, the growth is also higher than other carbonated/ flavoured/
functional water.
Figure 57: Off-trade volume 2012
Off-trade volume 2012
% Grow th 2011-12
200
7
150
bn litres
5
4
100
3
2
50
% Grow th 2012
6
1
0
0
Still Bottled
Water
Carbonated
Bottled Water
Flavoured
Bottled Water
Functional
Bottled Water
If one were to profile the growth of non-still bottled water, carbonated bottled
water has contributed the most in terms of absolute growth, while the
absolute growth in functional water remains low. This is probably to do with
the small base. Growth rates remain healthy globally when compared to
carbonates, fruit juices. Functional water is considered a healthier alternative
to carbonates and that awareness is driving growth for the category. The total
global size of functional water is c.38bn litres and market size is pegged at
USD30bn.
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16 April 2014
Food & Beverage
Figure 58: Off-trade volume of enhanced waters 2012
Functional Bottled Water
Flaboured Bottled Water
Carbonated Bottled Water
Western
Europe
North America
Middle East
and Africa
Latin America
Eastern
Europe
Australasia
Asia Pacific
0
5
Billion Litres
10
15
Figure 59: Regional functional bottled water vs. other soft drinks: off-trade
volume CAGRs 2007/2012
16
Car bonates
Fr ui t/Vegetabl e Jui ce
Functi onal Bottl ed Water
14
12
2
110
0
2
–
7 8
0
0
2
R 6
G
A
C 4
%
2
0
-2
-4
Asi a Paci fi c
Austr al asi a
Easter n
Eur ope
Lati n Amer i ca
Mi ddl e East
and Afr i ca
Nor th
Amer i ca
Wester n
Eur ope
In the global ranking, Parle Bisleri (India) ranks ninth by volume, and is the
second fastest-growing company within the top ten with a growth of c.18%.
‘Himalayan’ mineral water grew by 24% in FY2013. In an Indian context, the
market size of overall packaged water is c.INR100bn and grew by 30% in
FY2013. The top three brands in India – Bisleri, Aquafina (Pepsi) and Kinley
(Coca Cola) – together account for 50% of the market share. The market size of
mineral water is INR1bn. ‘Himalayan’ is positioned as a premium natural
mineral water and is priced at INR45 per litre vs. Aquafina and Bisleri at INR18.
As highlighted earlier, since a major part of the market is bulk packaged water,
where ‘Himalayan’ may not have a bigger share, its growth is largely
contingent on market growth in mineral water.
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16 April 2014
Food & Beverage
Figure 60: Bottled water company performance: off-trade volume 2012
% Gr owth 2011-12
10
2
5
0
0
Gr oupe Danone
The Al ma Gr oup
4
Par l e Bi sl er i Ltd
15
Chi na Resour ces
Enter pr i se Co Ltd
6
Acqua Mi ner al e
San Benedetto SpA
20
Ti ng Hsi n
Inter nati onal Gr oup
8
Hangzhou Wahaha
Gr oup
25
Pepsi Co Inc
10
Nestl e SA
30
The Coca-Col a Co.
12
% Shar e
35
% Gr owth
Off-tr ade vol ume 2012
14
NourishCo Beverages
NourishCo is a 50:50 JV between TGB and PepsiCo. It was formed in 2010 to
handle sales, marketing and distribution of ‘Himalayan’ and other water
products through PepsiCo distribution in India. Currently, the JV markets and
sells Himalayan, Tata Gluco Plus and Tata Water Plus. Tata Water Plus and
Tata Gluco Plus are currently present in only two states – Tamil Nadu and
Andhra Pradesh.
Tata Water Plus is fortified water which aims to add health benefits along with
quenching thirst. Its first variant had Zinc and copper and is available in one
litre pet bottles and single serve 200ml pouches. Tata Gluco Plus is a glucosemixed flavoured water which combines the energy source – Glucose – with
tasty flavours. Currently it is available in Andhra Pradesh and Tamil Nadu in
three flavours – Lemon, Orange and Mango.
Activate – a niche product in the US
Activate is a US-based performance beverage and bottled water brand. The
product has a unique delivery system whereby vitamins stored in a chamber
inside the bottle cap are released when the bottle is opened. This ensures the
efficacy of the vitamins, which would otherwise deteriorate if it sits in water for
a period of time. Activate products also do not contain sugar or any calories.
Tata coffee (a 57.48% owned subsidiary of TGB) has invested USD22.4m in the
start-up in FY13 to pick up a 47.3% stake in the company. The investment in
Activate has been made by Tata coffee possibly as Tata Coffee has a much
bigger operation in the US through the Eight O’Clock Coffee business.
Recently, TGB wrote-off the investment in Activate.
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16 April 2014
Food & Beverage
Himalayan natural mineral water – A unique product of its
kind
Himalayan is a natural mineral water brand. The natural mineral water
business in India is a niche business and makes up around 1% of the total
packaged water business market in India. Within natural mineral water
category, Himalayan has a market share of c25%.
The uniqueness of the product is in the way the product is bottled which
allows it to be priced at a 150% premium to normal packaged drinking water.
The water is sourced from a large pristine and protected aquifer which flows
well below the earth’s surface. The water is collected in the catchment area
and travels through rocks, clay and soil, thereby collecting the minerals
available therein. The process of travelling from the catchment area, reaching
the aquifer and then being bottled, takes a period of over 20 years.
Clarity on value capture required for part of Himalayan sales
Mount Everest Mineral Water (MEMW -50% owned by TGB, in the process of
merging it with itself) also sells Himalayan through Nourishco Beverages (a
50:50 JV between TGB and PepsiCo India). The idea was to leverage the
distribution strength and “marketing expertise” of Pepsi. We do not have
clarity on the profit share between the entities.
Secondly, MEMW has also received orders from Starbucks Singapore. We do
not have sufficient clarity on how much of the profit will be realized by TGB
shareholders. TGB owns 50% of MEMW, 50% in TATA Starbucks JV and 50%
in NourishCo.
In FY2013 the export of Himalayan to Singapore was INR0.25m, about 0.1% of
‘Himalayan’ sales. The related party transaction disclosure in annual report
does not show any sales through TATA Starbucks JV or Nourishco.
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16 April 2014
Food & Beverage
Financials and valuation
SOTP is the right valuation methodology due to the
diversity in business
We value TGB on an SOTP basis and assign a target price of INR200/shr. We
believe SOTP is the best methodology, due to its operations in multiple
geographies with different growth profiles. We have valued the domestic tea
(discount is warranted due to the lower category attractiveness), international
tea business at 10x EBITDA, Coffee business at 14x EBITDA, Starbucks JV at
20x EBITDA. Coffee business has better growth profile (entry into pods is the
primary reason) and hence we argue a higher multiple for coffee business.
Refer section "Coffee continues to lead tea" (page 24). The consumer sector
EBITDA multiple (including Staples) is 21x one-year forward. We have
attributed a 25% discount to the market value of investments it holds (in other
Tata group companies) and have valued the Himalayan mineral water business
at the acquisition price. We attribute no value for NourishCo (JV with PepsiCo)
due to a lack of data availability and limited management guidance on
business plans. Our target price is INR200, which offers 30% upside potential
from the current market price. The implied PE is 22x FY16e earnings for 17%
earnings CAGR over FY14-16e.
Figure 61: SOTP valuation
Business
Valuation methodology EBITDA (INRm)
India Tea business
EBITDA multiple
International Tea Business
Coffee Business (57%
ownership)*
Multiple (x)
2,697
15
40,462
65
33
EBITDA multiple
2,582
10
25,817
42
21
EBITDA multiple
2,073*
14
29,026
47
24
95,305
154
78
Extant Business Value
Starbucks JV
Investments
Himalayan mineral water
EV (INRm) Per share value % of overall EV
(%)
EBITDA multiple**
18,540
30
15
25% discount to market
value of INR5,947
4,460
7
4
25% discount to
purchase price of
INR4,247
3,185
5
3
NourishCo (Pepsi JV)
EV
Less: Debt
Equity value
0
0
0
121,490
197
100
1,334
120,156
# of shares
618
Price per share
194
Target Price (Rounded off)
200
Source: Deutsche Bank. * Only 57% of Coffee business EBITDA is used for calculations, Starbucks valuation explained below.
Starbucks JV – We have valued Starbucks JV at the potential opportunity
which this business can capture in 10 years discounted to present value (refer
to Figure 11) for detailed valuation)
Coffee business – The coffee business in India, US and Canada is owned only
57% by TGBL. We value the coffee business at 14x EBITDA.
Page 46
16 April 2014
Food & Beverage
Tea business – The tea business has very different growth rates in India vs. its
growth rates in UK/Canada/Australia. We believe EBITDA of 15x is the right
way to value the domestic business where TGBL is the second-largest player
and an EBITDA of 10x for the international business where although TGBL is
the number one (Canada) or 2 (UK), the growth rates are significantly lower
than the Indian business.
Water business – The water business, although a very promising business,
currently has significant challenges. We therefore do not ascribe any value to
the water business. We await further clarity on the business plans and the all
India launch plan for Tata Water Plus and Tata Gluco Plus. We believe there is
a possible upside from the Himalayan water business as well considering the
tie-up with Starbucks for retailing branded water in their South Asian outlets.
We await further management clarity on the tie-up details before assigning any
value to the business. The price paid by TGB for acquiring Mount Everest
Mineral water (the erstwhile owner of Himalayan brand) was INR4,247m. For
our valuation, we have applied a 25% discount to the purchase price.
Investments – The company has significant equity investments in Tata group
companies. The market value of these listed investments is INR5,947m. While
we do not foresee its liquidation in the near future, the sale of investments in
Tata consultancy services in FY13 shows the intent of management to
liquidate investments when in need of capital. We assign a 25% holding
company discount to this investment for its valuation.
Figure 62: Investments in group companies
Number of shares
Current market price
(INR)
Value (INRm)
Tata Chemicals
11,345,522
288
3,266
Titan Industries
9,248,060
262
2,423
Indian Hotels
Investments
1,687,742
74
125
Tata investment
corporation
160,000
459
73
Tata Motors
116,665
423
49
Tata Motors – DVR
16,665
236
4
Tata Steel ltd
12,021
420
5
Joonktolle Tea and
industries
12,602
134
2
Total
5,947
Source: Company data, Bloomberg Finance LP, Prices as on 11 April’ 2014
th
Key assumptions
We factor in revenue growth of 6% CAGR FY14-16e primarily driven by both
volume growth and pricing negatively affected by INR appreciation. Tea and
coffee prices are expected to be inflationary this year (source: Mcleod Russel).
We have factored in a gross margin expansion of 50 bps FY14-FY16e as the
company continues to focus on branded business and value-added beverages.
We also believe that the Ad to sales ratio of 17%, one of the highest in the
Indian consumer sector, will remain at elevated levels as the company will
continue to invest in its brands. The divergence between EBITDA growth and
EPS growth is primarily on account of lower interest cost. We expect the
company to generate INR12.5bn of FCF over FY14-16e.
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16 April 2014
Food & Beverage
Figure 63: Key assumptions
Assumptions
FY10
FY11
FY12
FY13
FY14e
FY15e
FY16e
Overall Revenue
Growth
19
3
10
10
7
5
7
Tea business
growth
16
2
6
11
7
5
7
Coffee business
growth
28
10
20
9
6
8
8
Others revenue
growth
76
-28
42
8
10
8
8
Gross Margin (%)
53.2
51.1
49.5
50.9
51.5
51.9
52.0
Ad Spend to sales
(%)
17.0
16.9
16.7
17.0
17.0
17.1
17.2
EBITDA Margin (%)
11.8
9.8
8.8
9.5
9.8
10.4
10.7
EPS (INR/Shr)
6.16
4.02
5.51
6.33
6.42
7.39
8.42
EPS growth (%)
79.7
-34.8
37.3
14.8
1.3
15.1
13.9
Margins
Source: Company data, Deutsche Bank estimates
Figure 64: EBITDA margin profile for TGB
EBITDA
INR mn
10,000
EBITDA margins (RHS)
18%
17%
9,000
16%
16%
8,000
13%
7,000
14%
12%
12%
11%
10%
10%
6,000
9%
5,000
9%
10%
10%
8%
6%
FY16E
FY15E
FY14E
FY13
FY12
FY11
FY10
FY09
FY08
FY07
4,000
EBITDA margins have to decline to c.800bps to 9% over FY2007-2013 due to
(1) mix deterioration, (2) inflation in commodities not fully passed-through in
the past, (3) acquisition of Grand in Russia (weak brand, TGB had bought it for
distribution), and (4) divestment of plantation business.
The company has a very low financial leverage and has a debt to equity of just
0.03x. We have factored in debt repayments through internal accruals. Hence
we take a lower interest cost and lower other income. There is no mandatory
loan repayment due for the company.
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16 April 2014
Food & Beverage
Figure 65: TGB has a very low net debt to equity
200%
180%
150%
100%
27%
50%
1%
0%
-3%
-17%
7%
3%
-1%
-2%
-5%
-50%
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14E FY15E FY16E
Figure 66: We expect a strong FCF of INR12.5bn during FY14-16 despite
INR1,000m capex for Starbucks JV each in FY15 and FY16
Free cash flow
(INR bn)
6
5
4
3
2
1
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14E FY15E FY16E
(1)
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16 April 2014
Food & Beverage
Return on equity appears low
Due to the various acquisitions, the company has a significant goodwill on its
books. Therefore the reported ROE of the company looks low. However, if one
were to exclude Goodwill in the calculations, the ROE works out to c30%.
Figure 67: Dupont analysis
ROE (%)
PAT Margin (%)
(Sales/Assets) (RHS)
(Assets/equity) (RHS)
18%
300%
16%
250%
14%
12%
200%
10%
150%
8%
6%
100%
4%
50%
2%
0%
0%
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
FY16E
Figure 68: The reported ROE looks optically low
ROE (%)
PAT Margin (%)
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
FY16E
Source: Deutsche Bank estimates, Company data
Page 50
16 April 2014
Food & Beverage
Figure 69: Ex-goodwill, the ROE remains robust
ROE (ex goodwill)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
FY08
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
FY16E
The balance sheet has a significant amount of goodwill due to the various
acquisitions done by the company. Goodwill is 92% of intangible fixed assets.
The amortization of other intangibles therefore forms a very minor component
which we have clubbed with depreciation itself.
Figure 70: Goodwill is c45% of fixed assets
Goodwill
Goodwill as % of net fixed assets (RHS)
(%)
(INR bn)
60
80%
75%
50
70%
40
65%
30
60%
55%
20
50%
10
45%
0
40%
FY07
FY08
FY09
FY10
FY11
FY12
FY13 FY14E FY15E FY16E
The company has 70% of its revenues from international markets. Only India is
one of the few markets which operates on with a negative working capital
Page 51
16 April 2014
Food & Beverage
Figure 71: Working capital
(No. of days)
Working capital days
Receivables days
Inventory days
Creditors & other liabilities days
160
140
120
100
80
60
40
20
0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14E FY15E FY16E
Figure 72: PE band chart
Price
(INR)
10
15
20
25
200
180
25x
160
140
20x
120
15x
100
80
10x
60
40
20
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
0
Source: Deutsche Bank estimates, Bloomberg Finance LP
Page 52
16 April 2014
Food & Beverage
Figure 73: PE vs. earnings growth for TGBL
TGBL's 12 month fwd PE (LHS)
32
(%)
TGBL's Earnings growth (RHS)
175
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-08
Jan-11
-75
Jul-10
7
Jan-10
-25
Jul-09
12
Jan-09
25
Jul-08
17
Jul-07
75
Jan-07
22
Jul-06
125
Jan-06
27
Figure 74: Peer valuation table
CMP Target Rating
price
Market cap
(INR)
(INR)
INRbn
USDm
Asian Paints
539
500
Hold
517
Dabur
179
170
Hold
312
Godrej Consumer
866
950
Buy
295
Hindustan Unilever
607
590
ITC
344
Name
Jubilant Foodworks
EPS estimate
EPS growth (%)
EPS
grth %
P/E
m
FY14e
FY15e
FY16e
FY14e
FY15e
FY16e
FY14e
FY15e
FY16e
(20142016)
8,600
959
12.8
15.8
18.3
10.4
23.6
15.9
42.1
34.1
29.4
19.7
5,191
1,743
5.3
6.2
7.1
20.0
17.2
15.6
34.0
29.0
25.1
16.4
4,898
340
22.4
28.0
32.3
10.5
24.9
15.5
38.7
31.0
26.8
20.1
Hold
1,324 22,013
2,163
17.0
18.3
19.9
10.8
7.9
8.8
35.7
33.1
30.4
8.4
370
Buy
2,714 45,114
7,902
10.8
12.3
14.0
14.6
14.7
13.7
31.9
27.8
24.5
14.2
1,039
1,250
Hold
68
1,124
65
21.1
27.1
38.6
1.8
28.7
42.4
49.3
38.3
26.9
35.4
213
250
Buy
137
2,277
645
7.5
8.8
10.1
29.7
18.3
14.7
28.4
24.0
20.9
16.5
Marico
Nestle India
O/s
shares
4,850
4,650
Sell
468
7,771
96
120.0
130.7
151.2
8.4
8.9
15.8
40.4
37.1
32.1
12.3
152
200
Buy
94
1,564
618
6.6
7.8
9.0
9.0
18.4
15.6
23.2
19.6
16.9
17.0
Titan Industries
262
315
Buy
233
3,868
888
8.5
10.2
12.3
3.9
19.8
21.1
30.9
25.8
21.3
20.4
2,556
3,000
Buy
371
6,175
126
29.6
56.6
79.1
575.1
91.3
39.9
86.5
45.2
32.3
63.6
Sector average (exUNSP)
12.3
17.8
17.9
35.4
30.0
25.4
17.8
Sector average
63.5
24.5
19.9
40.0
31.4
26.1
22.0
United Spirits
Figure 75: Ownership structure
Percentage ownership (%)
Shareholder classification
2001
2007
2014
30
32
36
4
13
22
Domestic Institutions
26
30
14
Retail/Corporates/others
40
25
28
100
100
100
Promoters
Foreign Institutional Investors
Total
Source: BSE
Page 53
16 April 2014
Food & Beverage
Management profile
Mr Cyrus P Mistry: Chairman
Mr Cyrus Mistry is the Chairman of Tata Global Beverages Limited. He was
inducted on the Board of Tata Global Beverages Limited in June 2012. A
director of Tata Sons Limited since 2006, he was appointed Deputy Chairman
of Tata Sons Limited in November 2011. Mr Mistry joined the board of
Shapoorji Pallonji & Co as director in 1991 and was appointed managing
director of the Shapoorji Pallonji Group in 1994. He is a graduate of civil
engineering from Imperial College London (1990) and has an MSc in
management from the London Business School (1997). Mr Mistry is also a
director of Tata Industries, Tata Power, Tata Teleservices, Tata Consultancy
Services, Tata Steel, Tata Motors and Tata Chemicals.
Mr Ajoy Misra: Managing Director
Mr Ajoy Misra, presently the Executive Director and Deputy CFO of TGB will be
elevated and appointed as the Managing Director (MD) of TGB effective 1 April
2014. He is a Civil Engineering graduate from BITS Pilani and holds an MBA
from FMS, Delhi University. He was with Indian Hotels for nearly 30 years and
was leading its sales and marketing function in his most recent assignment.
His prior roles include heading sales for the Taj Group and Area Director in the
Sri Lanka and Maldives regions.
Mr L Krishna Kumar: Group CFO
Mr L Krishna Kumar is currently the Group CFO and supervises the finance,
governance and IT functions. He holds professional qualifications in Chartered
Accountancy, Cost Accountancy and Company Secretarial. Prior to joining the
company in 2000, he worked in various capacities across different units with
L&T. He joined the Tata Group in 2000 in the hotels business as its Vice
President of Finance. He took over the head of finance function of Tata Tea in
India in 2004.
Mr Pradeep Poddar: MD and CEO of Mount Everest Mineral Water Ltd.
Mr Pradeep Poddar has been MD and CEO of Mount Everest Mineral Water
since 2007. Pradeep also served as the Chief Executive Officer of Special
Projects at Tata Global Beverages Limited in the past. He holds an MBA from
IIM Ahmedabad and is a Chemical Engineer from UDCT. He has over 30 years’
experience in the consumer sector having held positions at senior level
positions at Glaxo India and Heinz, where he was Managing Director, Indian
and South Asia for over eight years.
Mr Hameed Huq: MD of Tata Coffee
Hameed Huq has been the Managing Director of Tata Coffee since January
2010. He joined Tata Coffee in 1999 as Vice President (Plantations) and was
promoted as Executive Director (Plantations) with effect from 3 January 2005.
Prior to joining Tata Coffee, Mr Huq was with Tata Tea since 1972 and held
various senior positions in the company.
Page 54
16 April 2014
Food & Beverage
The authors of this report wish to acknowledge the contribution made by Kumar
Rahul Chauhan, an employee of CRISIL, a third-party provider to Deutsche Bank
of offshore research support services.
Page 55
16 April 2014
Food & Beverage
Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company
Ticker
Recent price*
Disclosure
TAGL.BO
152.75 (INR) 15 Apr 14
NA
*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this
research, please see the most recently published company report or visit our global disclosure look-up page on our
website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=TAGL.BO
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the
subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive
any compensation for providing a specific recommendation or view in this report. Manoj Menon
Historical recommendations and target price: Tata Global Beverages (TAGL.BO)
(as of 4/15/2014)
200.00
Previous Recommendations
Strong Buy
Buy
Market Perform
Underperform
Not Rated
Suspended Rating
180.00
160.00
Security Price
140.00
120.00
Current Recommendations
100.00
Buy
Hold
Sell
Not Rated
Suspended Rating
80.00
60.00
40.00
*New Recommendation Structure
as of September 9,2002
20.00
0.00
Apr 12
Page 56
Jul 12
Oct 12
Jan 13
Apr 13
Date
Jul 13
Oct 13
Jan 14
16 April 2014
Food & Beverage
Equity rating key
Buy: Based on a current 12- month view of total
share-holder return (TSR = percentage change in
share price from current price to projected target price
plus pro-jected dividend yield ) , we recommend that
investors buy the stock.
Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the
stock
Hold: We take a neutral view on the stock 12-months
out and, based on this time horizon, do not
recommend either a Buy or Sell.
Notes:
1. Newly issued research recommendations and
target prices always supersede previously published
research.
2. Ratings definitions prior to 27 January, 2007 were:
Equity rating dispersion and banking relationships
450
400
350
300
250
200
150
100
50
0
55 %
39 %
26 %
Buy
23 %
Hold
Companies Covered
6%
14 %
Sell
Cos. w/ Banking Relationship
Asia-Pacific Universe
Buy: Expected total return (including dividends)
of 10% or more over a 12-month period
Hold:
Expected
total
return
(including
dividends) between -10% and 10% over a 12month period
Sell: Expected total return (including dividends)
of -10% or worse over a 12-month period
Page 57
16 April 2014
Food & Beverage
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Member of the Group Executive Committee
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