Tea has a huge unorganized market which will be impacted by GST
Rajen Shah explained that the tea business is an investment opportunity where the effect of GST has not been priced in.
There is a huge unorganised market in tea and there will be a perceptible shift towards the organised players, he said.
Tata Global has not participated in the Bull market rally at all
Rajen referred to a baffling aspect regarding Tata Global.
He pointed out that while the stock had crumpled along with the other stocks due to the dreaded effects of demonetisation, it had not recovered thereafter even though all other stocks had surged like rockets.
“Tata Global is one stock which has not participated. If you see during the days of demonetisation the stock had come down from a level of about Rs 154 to Rs 130 or so and it is currently at about Rs 145-46. So it has hardly participated in this move which we saw in the market from levels of 27,000 to 31,000 plus”, he said with a puzzled look on his face.
Tata Global is “very cheap” compared to its FMCG peers
Rajen pointed out that Tata Global Beverage is presently quoting at about 15x the expected EPS of Rs 9.
“For an FMCG company, this is very cheap,” he exclaimed.
He added that other blue-chip FMCG stocks of the same calibre such as Hindustan Lever, ITC, Procter & Gamble, Grodrej Consumer, Dabur, Marico, etc are demanding valuations ranging from 25x to 35x and there is no justification for Tata Global to quote at only 15x.
|TATA GLOBAL BEVERAGES LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||9,381|
|EPS – TTM||(Rs)||[*S]||4.37|
|LATEST DIVIDEND DATE||07 JUL 2017|
|BOOK VALUE / SHARE||(Rs)||[*S]||59.62|
[*C] Consolidated [*S] Standalone
|TATA GLOBAL BEVERAGES LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||MAR 2017||MAR 2016||% CHG|
(Source: Business Standard)
Value unlocking likely
Rajen also referred to the fact that Tata Global Beverages has an investment in Tata Chemicals.
He said that as the Tata Group has indicated that it intends to sell cross holdings between group companies, Tata Global would be able to realize the market value of the investment in Tata Chemicals.
N. Chandrasekaran, the illustrious Chairman of Tata Sons, has already decided to review the diverse portfolio of the Tata Group to streamline operations and allocate capital more efficiently and unlock value in businesses that are non-core and face growth headwinds.
“There will be a rationalization of portfolio of all the big companies, including Tata Steel Ltd, Tata Power Co. Ltd, Tata Chemicals Ltd. The structure will not be the same as today, they will either be merged or exited from completely,” one of the honchos of the Tata group was quoted as saying.
Valuations, in comparison to Starbucks, Pepsi, Coke are “dirt cheap”
Rajen laboured the point that in the global market, beverage companies like Pepsi, Coke and Starbucks are trading at 3x to 5x their sales.
Starbucks is presently available at 4.5x its sales.
However, in India, Tata Global (which encompasses Starbucks) is quoting at just 1x the revenue of Rs 9000 crore.
“You are getting it for one time the sales which is absolutely dirt cheap,” he exclaimed again.
N Chandra and Ajoy Misra will change fortunes of TGBL?
Rajen suggested that the change in guard in the form of N Chandra at Tata Sons and Ajoy Misra in TGBL could change the fortunes of the Company.
He also emphasized that Tata Global Beverage has a lot of financial firepower that it can deploy for ambitious ventures.
The Company is debt-free company and has Rs 500 crore of cash in the balance sheet.
Multibagger gains expected from Tata Global Beverages
Rajen made it clear that he would settle for nothing less than a target price of Rs. 450 for the stock.
“I am not looking at levels of Rs 225 or Rs 250 or Rs 300. This stock has a potential to touch Rs 450,” he said with immense confidence in his voice.
Rajen admitted that this target price sounded “very astonishing and surprising” but said that he is “pretty confident” that this number would be achievable in the next three-four years.
Prima facie, there is merit in Rajen Shah’s advice. Tata Global’s fail-safe status means that our capital is safe and sound. Even if Rajen’s theory does not work out, we are assured of getting our money back in one piece. However, if his theory does work out, we can bask in some much needed multibagger gains!