Tata Global upward rerating unsustainable: Morgan Stanley

Downgrades stock to underweight, citing poor earnings visibility, weak market positioning, lack of pricing power, lower return ratios and high valuations

Leading foreign brokerage downgraded Tata Global Beverages (TGBL) to underweight, citing poor earnings visibility, weak market positioning, lack of pricing power, lower return ratios and high valuations as key reasons.

The brokerage has assigned a target price of Rs 140 to the TGBL stock - which is a steep downside of 20% from Friday's closing price of Rs 173.45.

"The TGBL stock now trades at 22 times FY 14 estimated earnings (versus 17 times last five-year average 12 month forward multiple). Although we view the management change and the JV with Starbucks as incrementally positive, we expect the contribution to earnings to be limited", wrote Nillai Shah, Girish Achhipalia and Sanath Sudarsan of in a report dated 19th November 2012.

Not surprisingly, the stock tanked by 4.66% in the Monday's morning session to make a day's low of Rs 165.35 against a flattish Sensex.

Notably, the TGBL stock has doubled in 2012 so far, outperforming the benchmark Sensex by almost 80%. Further, the stock hit a new 52-week high of Rs 181.70 on 15th November 2012. This outperformance was driven by a host of positive news flow such as its joint ventures with Global giants Starbucks and Pepsi, management change and improving financial performance.

"There is lack of visibility in the international business for TGBL, and the international business remains vulnerable to input cost pressures. To that extent, the stock move seems exaggerated to us, and we would use this opportunity to book profits in TGBL", the report adds.

The brokerage has done a scenario analysis on the company and believes effective utilisation of its cash kitty (of about Rs 800 crore) along with improving pricing power/market share in its branded tea and coffee businesses could act as catalysts for TGBL in the best case scenario.

image
Business Standard
177 22
Business Standard

Tata Global upward rerating unsustainable: Morgan Stanley

Downgrades stock to underweight, citing poor earnings visibility, weak market positioning, lack of pricing power, lower return ratios and high valuations

Sheetal Agarwal  |  Mumbai 

Leading foreign brokerage downgraded Tata Global Beverages (TGBL) to underweight, citing poor earnings visibility, weak market positioning, lack of pricing power, lower return ratios and high valuations as key reasons.

The brokerage has assigned a target price of Rs 140 to the TGBL stock - which is a steep downside of 20% from Friday's closing price of Rs 173.45.

"The TGBL stock now trades at 22 times FY 14 estimated earnings (versus 17 times last five-year average 12 month forward multiple). Although we view the management change and the JV with Starbucks as incrementally positive, we expect the contribution to earnings to be limited", wrote Nillai Shah, Girish Achhipalia and Sanath Sudarsan of in a report dated 19th November 2012.

Not surprisingly, the stock tanked by 4.66% in the Monday's morning session to make a day's low of Rs 165.35 against a flattish Sensex.

Notably, the TGBL stock has doubled in 2012 so far, outperforming the benchmark Sensex by almost 80%. Further, the stock hit a new 52-week high of Rs 181.70 on 15th November 2012. This outperformance was driven by a host of positive news flow such as its joint ventures with Global giants Starbucks and Pepsi, management change and improving financial performance.

"There is lack of visibility in the international business for TGBL, and the international business remains vulnerable to input cost pressures. To that extent, the stock move seems exaggerated to us, and we would use this opportunity to book profits in TGBL", the report adds.

The brokerage has done a scenario analysis on the company and believes effective utilisation of its cash kitty (of about Rs 800 crore) along with improving pricing power/market share in its branded tea and coffee businesses could act as catalysts for TGBL in the best case scenario.

RECOMMENDED FOR YOU

Tata Global upward rerating unsustainable: Morgan Stanley

Downgrades stock to underweight, citing poor earnings visibility, weak market positioning, lack of pricing power, lower return ratios and high valuations

Leading foreign brokerage Morgan Stanley downgraded Tata Global Beverages (TGBL) to underweight, citing poor earnings visibility, weak market positioning, lack of pricing power, lower return ratios and high valuations as key reasons.

Leading foreign brokerage downgraded Tata Global Beverages (TGBL) to underweight, citing poor earnings visibility, weak market positioning, lack of pricing power, lower return ratios and high valuations as key reasons.

The brokerage has assigned a target price of Rs 140 to the TGBL stock - which is a steep downside of 20% from Friday's closing price of Rs 173.45.

"The TGBL stock now trades at 22 times FY 14 estimated earnings (versus 17 times last five-year average 12 month forward multiple). Although we view the management change and the JV with Starbucks as incrementally positive, we expect the contribution to earnings to be limited", wrote Nillai Shah, Girish Achhipalia and Sanath Sudarsan of in a report dated 19th November 2012.

Not surprisingly, the stock tanked by 4.66% in the Monday's morning session to make a day's low of Rs 165.35 against a flattish Sensex.

Notably, the TGBL stock has doubled in 2012 so far, outperforming the benchmark Sensex by almost 80%. Further, the stock hit a new 52-week high of Rs 181.70 on 15th November 2012. This outperformance was driven by a host of positive news flow such as its joint ventures with Global giants Starbucks and Pepsi, management change and improving financial performance.

"There is lack of visibility in the international business for TGBL, and the international business remains vulnerable to input cost pressures. To that extent, the stock move seems exaggerated to us, and we would use this opportunity to book profits in TGBL", the report adds.

The brokerage has done a scenario analysis on the company and believes effective utilisation of its cash kitty (of about Rs 800 crore) along with improving pricing power/market share in its branded tea and coffee businesses could act as catalysts for TGBL in the best case scenario.

image
Business Standard
177 22

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard