Tata Global Beverages: A Heady Brew

VISIT NOTE
TATA GLOBAL BEVERAGES

A heady brew
India Equity Research| Consumer Goods
We recently met Mr. Ajoy Misra, MD & CEO, and Mr. L. Krishnakumar, ED EDELWEISS RATINGS
and Group CFO of Tata Global Beverages (TGBL). Though tea contributes Absolute Rating NOT RATED
~74% to total branded turnover, TGBL has presciently transformed itself
from a pure tea company to a global beverage player. In its growth quest, it
has grown inorganically by acquisition of Tetley (UK) in 2000, followed by
multiple acquisitions & JVs in tea, coffee and water segments. From here
on, managements strategy to innovate & enter new geographies and exit
MARKET DATA (R: NA.BO, B: TGBL IN)
loss-making operations is bound to burnish prospects. Not rated.
CMP : INR 221
Target Price : NA
Prudent diversification to spur global play quest 52-week range (INR) : 228 / 114
TGBL, armed with 7 tea brands, is the second largest global player in the branded tea Share in issue (mn) : 631.1
segment. And, with tea contributing ~74% to branded turnover, it is a predominantly tea- M cap (INR bn/USD mn) : 143 / 2,206
focused player. However, TGBL is not resting on its laurels and has presciently changed Avg. Daily Vol.NSE (000) : 3,363.7
tack to shore up business. Case in point is the launch of green tea, RTDs, etc., in the tea
portfolio as growth in black tea head south. Moreover, recent acquisitions & JVs in coffee SHARE HOLDING PATTERN (%)
(Starbucks India, Eight Oclock in 2012) and water (acquired Himalayan in 2007, JV with Current Q1FY18 Q4FY17
PepsiCo in 2012 for water business) are ample proof of company incrementally Promoters * 35.6 35.8 35.7
diversifying its portfolio in its quest to become a global beverage play. MF's, FI's & BKs 18.2 19.0 19.2
FII's 15.0 15.9 15.7
Taking stock: Rationalising acquisitions Others 31.2 29.3 29.4
* Promoters pledged shares : Nil
In pursuit of growth, TGBL has made >10 acquisitions and entered multiple geographies. (% of share in issue)
Unfortunately, not all of these have yielded the desired result. Management has now
chalked out a strategy to turn around non-performing buys within a pre-defined time or
to restructure them or exit. This, in our view, entails twin benefits: (i) prune incremental PRICE PERFORMANCE (%)
consolidated losses & capital employed not generating desired return; and (ii) free up Stock over
Sensex Stock
Sensex
management bandwidth for more productive pursuits.
1 month 4.6 0.2 (4.4)
3 months 2.0 19.1 17.1
Outlook and valuations: Improving fundamentals; NOT RATED
12 months 18.7 41.1 22.4
After a couple of years of consolidation, TGBL has embarked on a strategy to restructure
its operations by giving closer look at all its acquisitions. This coupled with timely
execution to achieve its strategic priorities will likely re-rate the stock. Any consolidation
with other consumer goods focused Tata group company will be another re-rating
trigger. At CMP, the stock is trading at 36.2x FY17 P/E. NOT RATED.
Financials Abneesh Roy
+91 22 6620 3141
Year to December FY14 FY15 FY16 FY17
abneesh.roy@edelweissfin.com
Revenues (INR mn) 77,376 79,934 66,365 67,796
Rev. growth (%) 5.3 3.3 (17.0) 2.2 Alok Shah
+91 22 6620 3040
EBITDA (INR mn) 7,519 7,749 6,543 7,911 alok.shah@edelweissfin.com
Adjusted Profit (INR mn) 3,918 3,778 3,274 3,841
Adjusted Diluted EPS (INR) 6.3 6.1 5.2 6.1 Rajiv Berlia
+91 22 6623 3377
EPS growth (%) (2.3) (3.6) (15.1) 17.3 rajiv.berlia@edelweissfin.com
Diluted P/E (x) 34.8 36.1 42.5 36.2
ROAE (%) 6.8 5.7 4.1 6.3 October 30, 2017
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Consumer Goods
Key Highlights
i. Global beverage player
TGBL has grown more inorganically than organically. Commencing operations as a pure tea
player, it is now a key player in tea, coffee as well as water segment, not only in India, but in
multiple geographies.
Fig. 1: History of TGBL
Source: Company, Edelweiss research
Chart 1: Product wise and Geography wise revenue breakup

Others & Others and
Specialty Non
brands Branded
12% 13% South Asia
Tea
Eight 41%
O'Clock India tea
14% brands Europe,
45% MENA
23%
Canada,
America &
Tetley Australia
29% (CAA)
23%
2 Edelweiss Securities Limited

Tata Global Beverages
Table 1: Product category and market positioning

Geography Product Market position Remarks
India Tata Tea #1
Tetley #2 in Everyday Black, Redbush and Green tea
UK
#1 in Decaffeinated
Canada Tetley #1
World Tetley #2
#3 in Bag coffee segment
World Eight O'Clock
#2 of whole bean coffee
Mr. Ajoy Misra,

ii. Acing domestic tea pie
Managing Director and CEO,
TGBL TGBL is the second largest player in the branded tea segment in the world. Moreover, its
flagship Tata Tea brand is the leader (in volumes and value) in the domestic tea market with
~29% share. The company has come a long way starting with investments in plantations in
1960s to entry in the domestic branded tea market with Tata Tea in 1980s. India tea brands
contribute 45% to the companys branded sales. TGBL boasts of a formidable distribution
networkreaches >2mn outlets pan-India (still huge room to expand).
TGBLs domestic tea business revenue has clocked 11.6% CAGR over FY08-17.
Management expects this pace to sustain underpinned by new product launches as well as
shift in consumption from loose to packaged tea.
Chart 2: TGBLDomestic tea revenue

32,500
28,000
23,500
(INRmn)
19,000
14,500
10,000
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Domestic tea revenues


Consumer Goods
Table 2: Tata TeasProduct range in India
Tea - Brands Sub - Brands Description
Tata Tea Premium Fl a gs hi p Bra nd - # 1 tea bra nd of Indi a ; Ma rket l ea der i n Indi a (vol ume a nd va l ue)
Elaichi Chai Infus ed wi th Ca rda mom
Chakra Gold # 2 bra nd i n the premi um dus t tea s egment; Key Ma rkets : Andhra Pra des h & Ta mi l Na du; offers
cus tomi s ed bl end del i very
Gemini # 1 i n Andhra Pra des h a nd Tel a nga na combi ned, i n vol ume a s wel l a s ma rket s ha re. Enjoys a 27%
vol ume a nd va l ue s ha re, s i gni fi ca ntly a hea d of a l l competing bra nds i n the dus t a nd l ea f
s egments
Gold Innova tor wi th 15% l ong l ea f, bui l t on the a roma pl a tform ; Premi um s egment to upgra de i ma gery
of Ta ta Tea
Teaveda Wi th the goodnes s of Ayurveda . The ra nge ha s three va ri a nts Ta ta Tea Tea veda (regul a r l oos e
l ea f tea ), Ta ta Tea Tea veda Pro Energy a nd Tea veda Pro Woma n
Kanan Devan Ma rket Lea der i n dus t s egment i n K ta ka a nd #2 i n Kera l a
Life Hea l th & wel l nes s bra nd i n ma i ns trea m tea s pa ce; Fl a vours Gi nger, Ca rda mom, Bra hmi , Tul s i
Agni Economy s egment l ea der; Strength & va l ue for money; Ava i l a bl e i n l ea f a nd dus t va ri a nt
Expanding via inorganic route

In order to capture the burgeoning global tea market, TGBL acquired Tetley (UK) in 2000 for
GBP270mn. At the time of acquisition, Tetley was almost 3x Tata Tea. Post the buy,
sustaining the acquisition spree, TGBL acquired 5 other companies across high potential
emerging markets.
Table 3: List of acquisitions along with acquisition size

Year Target Name Country
2000 Tetley UK
2005 Good Earth USA
Mr. L. Krishnakumar, 2006 Jemca Czech Republic
Executive Director and Group 2006 Joekels South Africa
Chief Financial Officer, 2007 Vitax Poland
TGBL 2011 Joekels South Africa
The acquisitions have also enabled strong cross-pollination of brands as well as best
business practices in different geographies. For e.g., Tata Tea and Tetley are present in India
and both have created their nichewhile Tata Tea is largely strong in leaf tea category,
Tetley is strong in black and green tea.

Chart 3: Proportion of tea has increased from 70% to 74% over past 5 years
100.0
13 14 16 11 12
80.0 14 14
17 15 14
60.0 31 29
36 34
(%)
38
40.0
20.0 44 45
32 35 36
0.0
FY13 FY14 FY15 FY16 FY17
India tea brands Tetley Eight O'Clock Others & Specialty brands
Note Others include Good Earth (USA), Vitax (Poland), Jemca (Czech Republic), Teapigs, Water Business
(India), MAP (Australia) and other Branded Sales
What has changed in tea market over past ~3-4 years?

While the black tea market is expanding in most Asian geographies, it is declining in
developed countries like UK. TGBL, cognizant of this, is revamping its product offerings in
the tea segment.
The company is introducing many innovations and new products in value / mainstream as
well as Premium & Super premium segments to counter the decline in revenue from the
black tea segment. TGBL has launched Ayurveda Balanced Tea range and Tetley Super
Green Tea fortified with vitamins. It has also launched RTD Green Tea in Canada, Fruski in
the domestic market and Tetley Indulgence range of teas in UK.
Fig. 2: Recent innovations majority in tea category

Consumer Goods
Fig. 3: TGBLs play across value price points
TGBL is also entering a few large tea consuming Asian markets such as Singapore,
Malaysia and China. It has tied up with Alibaba to enter the B2C China market In China,
company is seeing a shift from green tea to black tea as a consumption pattern.
Management believes that, all this steps will not only cover up for revenue loss from
declining black tea trend but also bring profitable growth at TGBL level.
iii. Transitioned to becoming a global beverage players

a. Brewing coffee play
While tea business continues to contribute lions share to TGBLs revenue, in its quest
to become a global beverage player, TGBL is making strong inroads in the coffee
business as wellcontributes ~15-16% to overall revenue.
In coffee, the company owns ~57% stake in Tata Coffee, which has total cultivated area
of 25,226 acres and is one of Asias largest producers of coffee with ~10,000mt capacity.
Apart from this, TGBL also has strong position in the branded coffee business globally,
post acquisitions and JVs with coffee majors including Starbucks.
Table 4: List of acquisitions in coffee business

2006 Eight O'Clock USA
2009 GRAND Russia
2012 Starbucks India
2012 Eight O'Clock Coffee USA
2014 MAP Coffee Australia
Starbucks JV likely to bring big bucks

TGBL has tied up with Starbucks (50:50 JV) to bring the latter in India. Its first store was
started in FY13 and from then, TGBL has opened 100 stores till October 2017. Starbucks
continues to show good top-line growth and store level profitability. Growth in new stores,
new formats and improving sales velocity in the existing stores is expected to continue going
forward. Just to elucidate, on its 100th store opening, Starbucks decided to offer all coffee at
INR100 (incl. of taxes) on 28 Oct 2017. Based on our channel checks, such flash offer would
have given a strong boost to Starbucks sales. The company is confident of seeing positive
contribution from this JV at the consolidated TGBL level.

Fig. 4: Starbucks offer of any drink at INR100 (incl. of taxes)
b. Water: A sparkling offering

Within the overall soft drinks category, water is poised to be amongst the fastest
growing categories over the next 5 years. In order to play the entire gamut of
beverages, TGBL entered the water business with the acquisition of 33% stake in
Mount Everest mineral water (owner of Himalayan brand) in 2007. Gradually, TGBL
merged Mount Everest mineral water within itself. The Himalayan brand has been
positioned as a premium category in the water segment.
TGBL is now set to take its Himalayan brand of mineral water to USA, the fastest
growing water market in the world. To this end, the company has inked an agreement
with Talking Rain Beverage to distribute and market its brand.
The company has also entered into a JV with PepsiCo NourishCo to market and
distribute non-carbonated RTD beverages focussed on health & wellness. The JV
currently sells Himalayan, Tata Water Plus and Tata Gluco Plus in India. While Tata
Gluco Plus is available in TN, AP, Kerala, Karnataka, Maharashtra & Gujarat, Tata Water
Plus is sold primarily in TN and AP. In order to innovate and satiate consumers demand
for healthy non-carbonated drinks, Himalayan has launched flavoured water Orchard
Pure in 3 flavoursstrawberry, apple and peach. For FY17, the JV registered top line
growth of 29% YoY.
Table 5: Synopsis of TGBLs foray into Water business

2007 Himalayan India + Overseas
2011 NourishCo India + Overseas
iv. Why TGBL is looking interesting now?

TGBL has clocked revenue, EBITDA and PAT CAGR of -2%, 0.7% and -1.1%, respectively, over
FY13-17. This primarily made the Street not give a serious look at the stock.

Consumer Goods
So what has changed now?
After a couple of years of consolidation, TGBL has embarked on a strategy to restructure its
operations. This change in tack was triggered by:
a. Shift in market trend: Mainstream black tea category is declining in key developed
markets and premium category is growing.
b. Rising competitive intensity: Promotional intensity has heightened in the market with
players trying to protect their market share.
c. Adverse macroeconomic environment: With events like Brexit, there has been some
uncertainty in business as well as forex movement.
d. Cyclical movement of commodity costs.
Strategic changes on the anvil: In order to circumvent the changing trends, TGBL has
announced some strategic changes as follows:
a. Base business rejuvenation.
b. Innovation drive.
c. Investment for growth.
d. Driving operational effectiveness.
Base business rejuvenation and innovations

The strategy here will be to focus on profitable growth in core business. TGBL will build and
focus on its power brandsTetley, Tata Tea, Eight OClock and Himalayan. The objective is
to sharpen management focus and capital employed in these brands.
TGBL will also focus on premiumisation in various categories. Further, in line with changing
consumer trends and to innovate products, the company will also focus on growing non-
black tea segment and health & wellness segments. To this end, the company has launched
Teaveda in India, Ayurvedic Balance in Canada, Tetley Super Greens in India & US, special
Infusion Coffee range in US, Indulgence range in UK, Tetley RTD in Canada and Fruski in India.
TGBL is also increasingly bringing innovation on the delivery channel and developing
alternate channels. Digital channel will also help bring convenience aspect for customers. To
this end, the company has tied up with Alibaba for its e-commerce sales in China, rolled out
a digital boutique for Good Earth teas in US, etc.
Investment for growth

Based on our interaction with management, we understand that TGBL is now clearly
focussed on achieving profitable growth. To achieve this, the company will focus on
incubatory businesses:
a. JV with PepsiCo, NourishCo, JV: Launched Tata Gluco Plus and Himalayan flavoured
water & sparkling water. Good improvement in operating profit is seen in this JV.
b. JV with Starbucks: Has been sustaining good topline growth with good store level
profitability.
c. Middle East initiatives: TGBL will enter through new launches and growth in GCC
countries launched loose tea Tetley products.
Moreover, TGBL is also expanding its white spaces by strengthening in tea and coffee
markets and exploring new growth avenues. This the company plans to achieve via:

a. Entry in new large tea consuming Asian markets such as Singapore, Malaysia and China.
b. White spaces in India consolidation position in Maharashtra with Gold mixture.
c. Expansion of super premium tea through Teapigs in new markets.
d. Entry of Himalayan water in US.
Operational effectiveness
In pursuit of growth, TGBL has made >10 acquisitions and entered multiple geographies.
Unfortunately, not all of these have yielded the desired result. Management has now
chalked out a strategy to turn around non-performing buys within a pre-defined time or
restructure them or exit. This, in our view, entails twin benefits: (i) prune incremental
consolidated losses & capital employed not generating desired return; and (ii) free up
management bandwidth for more productive pursuits.
The company has already announced its exit from loss-making geographies Russia
(negative net worth of INR560mn) and China (net worth of INR413mn, but net loss for last
financial year of INR204mn). Plus, it has also announced reassessment of stressed market
viz., Poland (negative networth of INR46mn).
Though management has not explicitly stated any financial impact arising from either of
these initiatives, structurally it is a positive move.
In order to drive effectiveness, TGBL will also evaluate all its cost items to determine scope
for cost saving avenues. This will improve EBITDA margins.
Edelweiss View: Leadership change too poised to bring structural change

With Mr. N Chandrasekaran as Chairman of Tata Sons, we believe a lot of structural changes
are on the anvil. Mr. Chandrasekarans (also Chairman of TGBL) philosophy is to reduce the
complexities and number of companies within the same sector. Within FMCG space, the
Tata Group has 2 companies: (1) TGBL, which houses tea, coffee & water business; and (2)
Tata Chemicals, which houses consumer goods businesses such as salt, pulses, spices, and
water purifier, apart from chemicals and agri solutions.
We deduce from the Chairmans stated objective an indirect hint of possible restructuring
/ merger between TGBL and Tata Chemicals of consumer goods business. This will bring
good distribution synergies since there is a huge distribution overlap, which can be
leveraged if all consumer focused products are housed in the same entity. We believe, if
this happens (depending on deal contours), it can potentially lead to structural re-rating of
Tata Groups consumer goods company due to: (1) more brands; (2) higher operating
leverage at store, sales level; and (3) higher mix of domestic business.

Consumer Goods
Financial Outlook
Key P&L parameters
Revenue for the past 4-5 years has largely remained flat owing to structural issues as
highlighted earlier, forex impact owing to brexit and IND-AS method of accounting revenues
requiring promotions to be netted off from revenues in FY16 and FY17.
Chart 4: revenue trajectory

100,000
90,000
80,000
(INRmn)
70,000
60,000
50,000
Net revenues
In line with revenue growth, EBITDA and adjusted PAT too have largely been flat over the
past 5 years.
Chart 5: EBITDA and PAT growth

10,000
8,500
7,000
(INRmn)
5,500
4,000
2,500
EBITDA Adj. PAT

EBITDA margins
EBITDA margin has improved 120bps over the past 5 years.
Chart 6: Margin trajectory

12.5
11.5
10.5
(%)
9.5
8.5
7.5
EBITDA margins
Return ratios
RoE and RoCE (pre-tax) have been subdued owing to huge goodwill (~40% of balance sheet)
lying in the balance sheet. RoE, excluding goodwill, stands at 12.7% as at FY17.
Chart 7: Return profile

12.0 20.0
10.0 17.0
8.0 14.0
(%)
(%)
6.0 11.0
4.0 8.0
2.0 5.0
FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
RoE RoCE RoE (ex-Goodwill)

Consumer Goods
Key Risks
Slowdown in black tea market across geographies
Consumption of black tea is declining across key developed markets. Though consumption is
shifting towards specialty black tea and green tea, the rate of shift could be lower. Further,
due to specialty teas premium pricing, we believe volume growth could remain lower.
Input costs susceptible to higher commodity prices

With TGBLs business largely being marketing of branded tea and coffee, the company is
susceptible to price fluctuations in these beverages.
Change in consumption pattern

Beverage products are subject to continuous changes in consumption patterns. Significant
changes in consumer preferences may result in lost volumes; however innovation focus may
counteract the possible in loss volumes..
Innovations and new launches

TGBL is focussing on innovations and new product launches. This will keep A&P spends
elevated. Further, if the new products do not achieve desired results, it may hamper
financial performance to some extent.

Company Description
TGBL is a natural beverages company with a heritage of innovations and development,
which aims to be the most admired beverage brand in the world. With a presence in over 40
countries, TGBL is globally the second largest branded player in the tea category with
growing interests in coffee and water. The companys key focus is to create magical
beverage moments for customers. This it achieves via leveraging consumer insights by
launching new & innovative products, expansion of global footprint by entering new
markets and through continuous investments to strengthen branded portfolio.
Fig. 5: TGBLs presence and reach
Source:
Table 6: Product range along with description Tata Tea

Tata Tea Premium Fl a gs hi p Bra nd - # 1 tea bra nd of Indi a ; Ma rket l ea der i n Indi a
(vol ume a nd va l ue)
Elaichi Chai Infus ed wi th Ca rda mom
Chakra Gold # 2 bra nd i n the premi um dus t tea s egment; Key Ma rkets : Andhra
Pra des h & Ta mi l Na du; offers cus tomi s ed bl end del i very
Gemini # 1 i n Andhra Pra des h a nd Tel a nga na combi ned, i n vol ume a s wel l a s
ma rket s ha re. Enjoys a 27% vol ume a nd va l ue s ha re, s i gni fi ca ntly
a hea d of a l l competing bra nds i n the dus t a nd l ea f s egments
Gold Innova tor wi th 15% l ong l ea f, bui l t on the a roma pl a tform ; Premi um
s egment to upgra de i ma gery of Ta ta Tea
Teaveda Wi th the goodnes s of Ayurveda . The ra nge ha s three va ri a nts Ta ta
Tea Tea veda (regul a r l oos e l ea f tea ), Ta ta Tea Tea veda Pro Energy
a nd Tea veda Pro Woma n
Kanan Devan Ma rket Lea der i n dus t s egment i n K ta ka a nd #2 i n Kera l a
Life Hea l th & wel l nes s bra nd i n ma i ns trea m tea s pa ce; Fl a vours Gi nger,
Ca rda mom, Bra hmi , Tul s i
Agni Economy s egment l ea der; Strength & va l ue for money; Ava i l a bl e i n
l ea f a nd dus t va ri a nt
Source:

Consumer Goods
Table 7: International Tea Portfolio
Tetley UK #1 i n Deca ffei na ted a nd #2 i n Everyda y Bl a ck, Redbus h a nd Green tea
s egment i n the UK i n vol ume terms
Rest of Europe Lea di ng pl a yer i n bl a ck tea a nd va l ue-a dded tea . South Afri ca n
bus i nes s i ncl udes va l ue-a dded Rooi bos tea , Rus s i a n bra nd Gra nd
Canada Ma rket l ea der i n Ca na da
India Good ma rket pos i tioni ng
Middle East Fa s tes t growi ng tea bra nd i n GCC i n 2016-17
Poland Pres ence wi th va l ue a dded offeri ngs
Good Earth Re-l a unched wi th a new i dentity a nd a boutique ra nge of premi um
whol e i ngredi ent tea s i n l oos e a nd pyra mi d tea ba g forma t
Jema Cons umers Choi ce 2016 a wa rd for Jema Functiona l Tea the bes t i n
hot bevera ges ca tegory
Vitax La unched Vi tax Frui ts & Vege a n i nnova tive l i ne of frui t i nfus i ons
wi th vegetabl es
Teapigs La unched new feel good ra nge of tea s
Joekels Strong growth i n tea bra nds des pi te tough ma rket condi tions
Table 8: Coffee brands

Coffee - Brands Description
Eight EOC i s a va l ue gourmet coffee bra nd wi th na ti ona l di s tri buti on i n the
OClock US; l i mi ted di s tri buti on i n Ca na da ; #2 bra nd of Ba gged coffee i n the
(EOC) Northea s t regi on of the USA; #3 bra nd na ti ona l l y i n ba g coffee a nd #2
bra nd na ti ona l l y of whol e bea n coffee
MAP Grew MAT s ha re of tota l ca ps ul e ma rket a nd Ca ffi ta l y s ys tem, a hea d
of ma rket growth Ca ffi ta l y s ys tem, a hea d of ma rket growth
Grand Coffee La unched a s ucces s ful Na ti ona l Promo Ca mpa i gn to i mprove s a l es
a nd rega i n ma rket s ha re i n Freeze Dri ed Coffee i n Rus s i a
Tata Coffee Coffee portfol i o extended i n key ma rkets to Hot Tea Shop bl end i n
Grand Nov16 a nd Roa s t & Ground coffee i n Ma r17
Table 9: Water brands

Water - Brands Description
Tata Water Ta ta Wa ter Pl us i s a crea ti on by gl oba l nutri ti on experts us i ng s ta te-of-the a rt proces s a nd
Plus i ngredi ents wi th rea l benefi ts
Tata Gluco Ta ta Gl uco Pl us i s a gl ucos e ba s ed dri nk wi th Gl ucos e, El ectrol ytes a nd Iron to provi de i ns ta nt
Plus energy. Ava i l a bl e i n s even fl a vours : Lemony Zi ng, Ora ngy Burs t, Ma ngoey Rus h, Gra pey Bl i tz,
Appl ez Ci nna mony, Jeera a nd Pa nneer (Ros e)
Himalayan Bottl ed a t s ource, wi th a pl a nt a t the foothi l l s of the Hi ma l a ya s , Hi ma l a ya n i s the onl y na tura l

mi nera l wa ter bra nd. Al s o l a unched s pa rkl i ng wa ter a s wel l a s fl a voured wa ter i n l i mi ted ci ti es
of Indi a

Table 10: Key milestones

Year Milestones
1964 Ta ta crea tes a l l i a nce wi th Ja mes Fi nl a y the tea gi a nt to form Ta ta Fi nl ey
1968 Ta ta takes over the production a nd ma rketing of Ja mes Fi nl a y
1983 Ta ta Tea i s born; Ja mes Fi nl a y i s bought out
1991 Ta ta Tea enters the bus i nes s of bra nds
1993 TGBL s i gns joi nt venture wi th Al l i ed - Lyons PLC to es tabl i s h Ta ta Tetley
1996 Acqui res a s take i n Es tate ma na gement s ervi ces
2000 TGBL a cqui res Tetley group
2005 Acqui res Good Ea rth, a fa mous tea bra nd i n USA
Acqui res Ei ght o'cl ock, a popul a r coffee bra nd i n Ameri ca ; Acqui res JEMCA the l ea di ng tea bra nd i n Czech
2006
Republ i c ; Acqui res 33% s take i n Joekel s Tea , one of the l a rges t s el l i ng tea bra nds i n South Afri ca
Inves t i n Mount Everes t Mi nera l Wa ter (MEMW) whi ch owns Hi ma l a ya n wa ter; Acqui res Vi tax, a wel l known
2007
Pol i s h tea bra nd
2009 Ta ta Tea i ntegra tes bevera ge bra nds ; Acqui res Gra nd, a coffee bra nd i n Rus s i a
2011 Devel ops Nouri s hco through a JV wi th Peps i Co Indi a ; Increa s es s take i n Joekel s Tea , becomes s ubs i di a ry
2012 Si gns JV wi th Starbucks ; Ei ght O'Cl ock coffee s i gns a greement wi th Green Mountai n Coffee Roa s ters Inc.
2014 Acqui res MAP Coffee, Aus tra l i a 's fa mous coffee bra nd; Acqui s i tion of s take i n Ri s i ng bevera ges compa ny
2015 Merger of MEMW wi th TGB; Pol a nd res tructure: Outs ourci ng tra di tiona l tra de
2016 Pa ki s tan re-s tructure
Chi na i ns tant tea -exi t ; Rus s i a re-s tructuri ng fi na l i zed ; Ta ta Coffee to s et up 5,000MT FDC pl a nt i n Vi etna m;
2017
Agreement renewed wi th new terms wi th Keuri g

Consumer Goods
Management Overview
Mr. N Chandrasekaran: Chairman
Mr. N. Chandrasekaran is the Chairman of Tata Sons, the holding company and promoter of
more than 100 Tata operating companies. An alumnus of the Regional Engineering College
(now NIT) Trichy, Mr. Chandrasekaran chairs the boards of several group operating
companies including Tata Steel, Tata Motors, Tata Power and Tata Consultancy Services
(TCS), of which he was Chief Executive from 2009-17. He was also appointed Director on the
Board of the Reserve Bank of India in 2016. He is an active member of Indias bilateral
business forums and has served as the Chairman of Nasscom.
Mr. Harish Bhat: Non-Executive Director

He holds a Post Graduate Diploma in Management (PGDM) from the Indian Institute of
Management, Ahmedabad, where he was ranked first in the graduating batch, winning the
IIMA Gold Medal for Scholastic Excellence. Mr. Bhat also holds a B.E. (Hons.) degree in
Electrical and Electronics from Birla Institute of Technology and Science, Pilani, where he
graduated first class with distinction. He joined the Tata Group as a TAS probationer in 1987
and has completed over 28 years of service with the Group. He was the CEO and Managing
Director of Tata Global Beverages from July 1, 2012, to March 31, 2014, and continued on
the Board as a Non-Executive Director from April 1, 2014. He was previously with Tata Tea
from 1988-2000 holding various positions and has served in Titan Industries as Chief
Operating Officer of the Watches & Accessories Division. He is on the Board of Directors of
various Tata Group companies including Tata Coffee, NourishCo Beverages, Tata Starbucks,
Infiniti Retail and Trent.
Mr. Ajoy Misra: Managing Director and CEO

In a career spanning 37 years, Mr. Ajoy Misra has worked for 30 years in various
departments of Taj Hotels from sales & marketing to operations after he joined in 1980
through the Tata Administrative Services. He progressed to General Manager of Taj
President in Mumbai and was in Sri Lanka as Area Director Sri Lanka and Maldives and
General Manager of Taj Samudra Hotel in Colombo. He was last Senior VP, Global Sales and
Marketing for Taj Hotels Resorts & Palaces. Mr. Misra is a Civil Engineer from BITS, Pilani,
and has an MBA from the Faculty of Management Studies, Delhi University, followed by
completing the Advanced Management Program at Harvard Business School, Boston. He
was appointed Executive Director and Deputy CEO of TGBL and subsequently elevated to
MD & CEO from April1 , 2014. He is also on the Board of Directors of various Tata Group
companies.
Mr. L. Krishnakumar: Executive Director and Group Chief Financial Officer

Mr. L Krishnakumar has professional qualifications in Chartered Accountancy, Cost
Accountancy and Company Secretarial. He also holds a diploma in Systems Analysis. He has
held several senior positions in consulting and industry. After qualifying as CA, he worked
with A F Ferguson & Co for 5 years as a Senior Consultant. Mr. Krishnakumar subsequently
worked with Larsen & Toubro in a variety of areas and was in the corporate office as
General Manager, Finance. He joined the Tata Group in 2000 in the hotels business as its
Vice President, Finance. He took over the head of finance function of Tata Tea in India in
2004 and has been part of its growth story since then. He is currently the Executive Director
and Group CFO and supervises the finance, governance and IT functions. Mr. Krishnakumar
also oversees the Global Buying and Blending and part of the Operations functions of TGBL.

He is a director on the board of several of the companys overseas subsidiaries and is also
the Chairman of the Board of Mount Everest Mineral Water.
Mr. V. Leeladhar: Independent Director

Mr. V. Leeladhar has vast experience in the banking industry, having served as the Executive
Director of Bank of Maharashtra, Chairman & Managing Director of Vijaya Bank and
Chairman & Managing Director of Union Bank of India. He has also served as Deputy
Governor of the Reserve Bank of India for over 4 years and was a member of the Securities
& Exchange Board of India. Mr. Leeladhar is also on the Boards of Tata Coffee, Tata
Cleantech Capital, Airtel Payments Bank, TRIL Constructions and Axis Mutual Fund Trustee.
Ms. Mallika Srinivasan : Independent Director

Ms. Mallika Srinivasan is Chairman & CEO of Tractors and Farm Equipment. She has been at
the helm of affairs of industry bodies and trade associations such as Tractor Manufacturers
Association, Madras Management Association, Madras Chamber of Commerce & Industry
and Southern Regional Council of CII. She is also a Director of few other Indian companies.
Mallika is a recipient of several business awards and has been recognized by Business Today
for 7 consecutive years as one of the 25 most powerful women in Indian business. She was
awarded the Padma Shri by the President of India in 2014. She is a member on the Executive
Board of Indian School of Business, Hyderabad and also on the Board of Tata Steel and
AGCO Corporation, USA.
Mrs. Ranjana Kumar: Independent Director

Ranjana Kumar retired as Vigilance Commissioner of CVC, Government of India. She was
also Member, Governing Council, National Innovation Foundation, Ahmedabad. Her other
significant positions include Chairperson & Managing Director of Indian Bank, Chairperson
of National Bank for Agriculture and Rural Development (NABARD), Chairperson of the
Advisory Board on Bank Commercial and Financial Frauds, Executive Director, holding
concurrent charge as Chairman and Managing Director of Canara Bank and CEO of the US
operations of Bank of India based in New York. She is on the Board of Britannia Industries
Ltd., Vyome Biosciences Ltd., Rainbow Hospitals. She is also on the Board of Governors of
Indian Institute of Management, Kashipur and on the committee of Tirupati Tirumala
Devasthanam.
Mr. S. Santhanakrishnan: Independent Director

S. Santhanakrishnan, FCA is a partner of PKF Sridhar & Santhanam, Chartered Accountants.
He has more than 32 years experience in Finance, Accounts including IFRS, Strategy &
Planning, Global Assurance, Corporate Laws and Consulting. He was a member of the
Central Council of the Institute of Chartered Accountants of India (ICAI). He is actively
involved in numerous industry oriented initiatives of the Reserve Bank of India and the
Ministry of Corporate Affairs. He is on the Board of other Tata companies and IDBI Federal
Life Insurance Co. Ltd., and ICICI Home Finance..

Consumer Goods
Mrs. Ireena Vittal: Independent Director
Ireena Vittal, a former partner with McKinsey & Co., has helped government and public
institutions design and implement solutions core to Indias development, such as inclusive
urban development and sustainable rural growth. Ireena was a founding member of the
economic-development practice and the global emerging-markets practice at McKinsey &
Co. After 25 years in the corporate world, she currently works in the urban and agriculture
space and is also an Independent Director on the board of Titan Company, Indian Hotels,
Godrej Consumer, Tata Industries, Compass Group Plc, Wipro, Cipla and on the global
advisory board of IDEO.org, a non-profit organization dedicated to applying human-
centered design to alleviate poverty. Prior to McKinsey, Ireena worked with Nestle and
MaxTouch (now Vodafone). She graduated in electronics and has a MBA from Indian
Institute of Management, Calcutta.
Mr. Siraj Chaudhry: Independent Director

Mr. Siraj Chaudhry is the Chairman of Cargill India. Under his leadership, the Company has
successfully built its consumer and institutional businesses, with an enviable brand portfolio.
He is also on the Board of Tata Coffee as an Independent Director. A thought leader in the
space of Agriculture and Food, he is consulted by the Central and State governments for his
views in these fields. Mr. Chaudhry holds an MBA from the Indian Institute of Foreign Trade
(IIFT) and is a graduate of SRCC, University of Delhi. He presides and chairs several well-
renowned bodies such as the Food Industry Skill Council (under NSDC), the Agriculture and
Food committee (of USIBC) in India etc. He is also engaged with the World Economic Forum
(WEF).

Financial Statements
Income statement (INR mn) Balance sheet
Year to March FY14 FY15 FY16 FY17 As on 31st March FY14 FY15 FY16 FY17
Net revenues 77,376 79,934 66,365 67,796 Share capital 618 618 631 631
Cost of materials 36,775 38,373 36,216 35,616 Reserves & surplus 57,870 64,224 61,841 62,024
Gross profit 40,602 41,561 30,149 32,180 Shareholders funds 58,488 64,843 62,472 62,655
Employee expenses 7,880 8,577 8,051 8,350 Share suspense account - 13 - -
Advertisement & sales costs 14,023 13,256 5,775 5,847 Minority Interests 9,241 8,907 8,618 9,195
Manufac.and operating exp. 11,180 11,979 9,780 10,073 Long term borrowings 10,537 9,144 5,041 4,501
Total operating expenses 33,082 33,812 23,606 24,269 Short term borrowings 3,476 3,859 4,086 3,202
EBITDA 7,519 7,749 6,543 7,911 Total Borrowings 14,013 13,003 9,127 7,703
Depreciation & amortization 1,291 1,331 1,168 1,260 Long Term Liabi. & Provisions 2,991 2,609 2,991 2,157
EBIT 6,229 6,418 5,375 6,651 Deferred Tax Liability (net) 1,332 1,610 1,954 2,074
Less: Interest Expense 865 819 1,169 915 Sources of funds 86,065 90,984 85,161 83,784
Add: Other income 818 700 820 831 Gross Block (Tangible assets) 19,070 18,077 19,236 17,875
Add: Exceptional items 888 (1,300) (3,329) 53 Net Block (Tangible assets) 7,570 6,666 7,314 6,982
Profit before tax 7,069 4,999 1,698 6,620 Capital work in progress 594 339 331 604
Less: Provision for Tax 1,845 2,155 2,000 1,983 Intangible assets 2,360 2,739 2,272 3,107
Less: Minority Interest 290 257 (316) 654 Goodwill 41,882 38,043 37,096 34,979
Add: Share of profit from asso. (129) (109) (68) (89) Investment Property 712 701 687
Reported Profit 4,806 2,478 (55) 3,894 Total Fixed Assets 52,406 48,499 47,713 46,358
Less: Excep. Items (Net of Tax) 888 (1,300) (3,329) 53 Non current investments 6,079 15,837 11,225 12,847
Adjusted Profit 3,918 3,778 3,274 3,841 Deferred Tax Assets 869 712 1,168 620
No. of Sha. outstanding (mn) 618 618 631 631 Current investments 31 117 1,733 1,664
Adjusted Basic EPS 6.3 6.1 5.2 6.1 Cash and cash equivalents 7,252 5,625 5,010 5,748
No. of Dil. shares outstanding (mn) 618 618 631 631 Inventories 15,185 15,621 16,290 14,530
Adjusted Diluted EPS 6.3 6.1 5.2 6.1 Sundry debtors 6,543 5,811 5,924 5,925
Adjusted Cash EPS 8.4 8.3 7.0 8.1 Loans & advances 10,637 8,125 7,792 4,550
Dividend per share (DPS) 2.3 2.3 2.2 2.3 Other Current Assets 982 2,444 3,259 3,608
Dividend Payout Ratio (%) 29.0 57.3 (2,572.5) 38.0 Total current assets (ex cash) 33,347 32,000 33,266 28,613
Tax rate (%) 26.1 43.1 117.8 30.0 Trade payable 7,689 6,886 6,773 7,378
45.4 47.5 Other Current Liabilities & ST Prov.
6,230 4,919 8,182 4,688
Common size metrics- as % of revenues Total current liabi. & prov. 13,919 11,806 14,955 12,065
Year to March FY14 FY15 FY16 FY17 Net current assets (ex cash) 19,428 20,194 18,311 16,548
Cost of materials 47.5 48.0 54.6 52.5 Uses of funds 86,065 90,984 85,161 83,784
Employee expenses 10.2 10.7 12.1 12.3 Book value per share 95 105 99 99
Advertisement and sales costs 18.1 16.6 8.7 8.6
Manufac. and operating exp. 14.4 15.0 14.7 14.9 Free cash flow
Total operating expenses 42.8 42.3 35.6 35.8 Year to March FY14 FY15 FY16 FY17
Depreci. and Amortization 1.7 1.7 1.8 1.9 Reported Profit 4,806 2,478 (55) 3,894
Interest expenditure 1.1 1.0 1.8 1.4 Add: Depreciation 1,291 1,331 1,168 1,260
EBITDA margin 9.7 9.7 9.9 11.7 Add: Interest Exp.(net of tax) 863 815 1,155 913
EBIT margin 8.0 8.0 8.1 9.8 Others (2,825) 874 1,611 (180)
Net profit margins 5.4 5.0 4.5 6.6 Less: Changes in WC (84) 1,320 2,719 (1,525)
Operating cash flow 4,218 4,178 1,160 7,412
Growth metrics Less: Capex 1,457 1,789 1,463 1,324
Year to March FY14 FY15 FY16 FY17 Free cash flow 2,761 2,390 (303) 6,088
Revenues 5.3 3.3 (17.0) 2.2
EBITDA (2.2) 3.1 (15.6) 20.9 Cash flow metrices
PBT 11.0 (29.3) (66.0) 289.9 Year to March FY14 FY15 FY16 FY17
Adjusted Profit (2.3) (3.6) (13.4) 17.3 Operating cash flow 4,218 4,178 1,160 7,412
EPS (2.3) (3.6) (15.1) 17.3 Financing cash flow (3,632) (3,924) (2,818) (8,158)
Investing cash flow (1,204) (1,749) 1,209 2,249
Net cash flow (619) (1,494) (449) 1,503
Capex (1,457) (1,789) (1,463) (1,324)
Dividends paid (1,876) (1,793) (1,871) (1,890)

Retail
Profitability & liquidity ratios Valuation parameters

Year to March FY14 FY15 FY16 FY17 Year to March FY14 FY15 FY16 FY17
ROAE (%) 6.8 5.7 4.1 6.3 Adjusted Diluted EPS (INR) 6.3 6.1 5.2 6.1
RoAE (ex-Goodwill) (%) 18.3 13.1 8.5 12.7 Y-o-Y growth (%) (2.3) (3.6) (15.1) 17.3
Return on Cap. Emp. (pre-tax) (%) 9.5 8.4 7.4 9.4 Adjusted Cash EPS (INR) 8.4 8.3 7.0 8.1
Pre tax RoCE (ex-Goodwill) (%) 20.1 16.1 13.5 17.1 Dil. P/E (x) 34.8 36.1 42.5 36.2
Inventory days 144 147 161 158 Price to Book Ratio (P/B) (x) 2.3 2.1 2.2 2.2
Debtors days 32 28 32 32 Enterprise Value / Sales (x) 2.0 1.9 2.3 2.2
Payable days 77 69 69 73 Enterprise Value / EBITDA (x) 20.3 19.7 22.9 18.8
Cash Conversion Cycle 99 105 124 117 Dividend Yield (%) 1.0 1.0 1.0 1.1
Current Ratio 2.9 3.2 2.7 3.0
Gross Debt/EBITDA 1.9 1.7 1.4 1.0
Gross Debt/Equity 0.2 0.2 0.1 0.1
Adjusted Debt/Equity 0.2 0.2 0.1 0.1
Interest Coverage Ratio 7.2 7.8 4.6 7.3
Operating ratios
Year to March FY14 FY15 FY16 FY17
Total asset turnover 1.0 0.9 0.8 0.8
Fixed asset turnover 1.6 1.6 1.4 1.5
Equity turnover 1.5 1.3 1.0 1.1

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ADITYA
Digitally signed by ADITYA NARAIN
Aditya Narain DN: c=IN, o=EDELWEISS SECURITIES LIMITED,
ou=HEAD RESEARCH, cn=ADITYA NARAIN,
serialNumber=e0576796072ad1a3266c27990f
20bf0213f69235fc3f1bcd0fa1c30092792c20,
Head of Research
NARAIN
postalCode=400005,
2.5.4.20=6b7d777d3c8c77e0e2c454e91543f9f
4d9b8311cf0678cd975097fc645327865,
aditya.narain@edelweissfin.com st=Maharashtra
Date: 2017.10.30 14:46:34 +05'30'
Coverage group(s) of stocks by primary analyst(s): Consumer Goods

Asian Paints, Bajaj Corp, Berger Paints, Britannia Industries, Colgate, Dabur, Godrej Consumer, Emami, Hindustan Unilever, ITC, Marico, Nestle Ltd, Pidilite
Industries, GlaxoSmithKline Consumer Healthcare, United Spirits
Recent Research
Date Company Title Price (INR) Recos
27-Oct-17 ITC Cigarette volumes soft; FMCG 269 Hold

holds fort;
Result Update
27-Oct-17 United Uncertainties behind; brighter 3,026 Buy
Spirits prospects ahead;
Result Update
26-Oct-17 Emami Volumes recover; outlook 1,171 Buy
promising;
Result Update
Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11
One year price chart

250
220
190
(INR)
160
130
100
Apr 17
Feb 17
Sep 17
Jun 17
Mar 17
Dec 16
Jul 17
Aug 17
Oct 17
Nov 16
Nov 16
May 17
Jan 17

Consumer Goods
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Consumer Goods
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Tata Global Beverages: A Heady Brew

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Tata Global Beverages: A Heady Brew

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VISIT NOTE

TATA GLOBAL BEVERAGES

Fig. 1: History of TGBL

Source: Company, Edelweiss research

Chart 1: Product wise and Geography wise revenue breakup

2 Edelweiss Securities Limited

Table 1: Product category and market positioning

Mr. Ajoy Misra,

Chart 2: TGBLDomestic tea revenue

Domestic tea revenues

3 Edelweiss Securities Limited

Expanding via inorganic route

Table 3: List of acquisitions along with acquisition size

4 Edelweiss Securities Limited

What has changed in tea market over past ~3-4 years?

Fig. 2: Recent innovations majority in tea category

Source: Company, Edelweiss research

5 Edelweiss Securities Limited

Source: Company, Edelweiss research

iii. Transitioned to becoming a global beverage players

Table 4: List of acquisitions in coffee business

Starbucks JV likely to bring big bucks

6 Edelweiss Securities Limited

Fig. 4: Starbucks offer of any drink at INR100 (incl. of taxes)

Source: Company, Edelweiss research

b. Water: A sparkling offering

Table 5: Synopsis of TGBLs foray into Water business

iv. Why TGBL is looking interesting now?

7 Edelweiss Securities Limited

Base business rejuvenation and innovations

Investment for growth

8 Edelweiss Securities Limited

Edelweiss View: Leadership change too poised to bring structural change

9 Edelweiss Securities Limited

Chart 4: revenue trajectory

Chart 5: EBITDA and PAT growth

10 Edelweiss Securities Limited

Chart 6: Margin trajectory

Chart 7: Return profile

11 Edelweiss Securities Limited

Input costs susceptible to higher commodity prices

Change in consumption pattern

Innovations and new launches

12 Edelweiss Securities Limited

Fig. 5: TGBLs presence and reach

Table 6: Product range along with description Tata Tea

13 Edelweiss Securities Limited

Source: Company, Edelweiss research

Table 8: Coffee brands

Table 9: Water brands

Himalayan Bottl ed a t s ource, wi th a pl a nt a t the foothi l l s of the Hi ma l a ya s , Hi ma l a ya n i s the onl y na tura l

14 Edelweiss Securities Limited

Table 10: Key milestones

15 Edelweiss Securities Limited

Mr. Harish Bhat: Non-Executive Director

Mr. Ajoy Misra: Managing Director and CEO

Mr. L. Krishnakumar: Executive Director and Group Chief Financial Officer

16 Edelweiss Securities Limited

Mr. V. Leeladhar: Independent Director

Ms. Mallika Srinivasan : Independent Director

Mrs. Ranjana Kumar: Independent Director

Mr. S. Santhanakrishnan: Independent Director

17 Edelweiss Securities Limited