TGBL’s Q4FY17 print was a mixed bag with a miss in its domestic tea business while Tata Coffee, CAA, UK, non-branded business and JVs did well. Overall, EBITDA was a tad below estimates due to higher A&SP to support new launches (in both domestic and international markets). We cut our EPS estimates by 7-10% to bake in Q4FY17 miss and commodity headwinds; retain Add and revise TP to Rs 160 , from Rs 150, rolling over to March-2019 (SOTP-based target).
TGBL’s domestic (tea business) posted a weaker-than-expected quarter on both revenues and EBITDA front – net operating revenues grew 3% y-o-y , 5% volume growth, 2% price deflation, EBITDA declined 16% y-o-y and recurring PAT declined 33% y-o-y. EBITDA miss was due to higher A&SP spends, up 90% y-o-y of a low base; 33% above our estimate, to support multiple new launches and new Jaago Re campaign.
Net operating revenues grew 5% y-o-y, 7% in c/c terms, to Rs 16.7 billion, highest in the past four quarters, EBITDA grew 12% y-o-y to Rs 1.79 billion and PBT (pre minority/share of associate earnings) grew 19% y-o-y to Rs 1.4 billion; we note recurring/reported PAT growth are distorted due to high impairment charge in the base quarter.
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EBITDA margin expanded 70 bps y-o-y led by 320 bps expansion in GM (largely led by lower coffee prices); however, a150 bps jump in A&SP and 80 bps jump in other expenditure curtailed margin expansion. For FY2017, the company reported revenue growth of 2% y-o-y (3% c/c), EBITDA growth of 21% y-o-y, PBT growth of 31% y-o-y and recurring PAT growth of 17% y-o-y; recurring EPS stood at Rs 6.1/share.
EMEA region posted 1.5% decline in revenues and EOC posted 9% y-o-y decline in revenues (10% in c/c terms). On the EBITDA front, domestic tea business posted 16% y-o-y decline. Tata Coffee standalone business posted 147% y-o-y growth in EBITDA (sharp margin expansion of 1,145 bps) and EOC posted 15% y-o-y growth in EBITDA.