TGBL reported a strong quarter operationally aided by GM gains (led by coffee business) and cut in A&SP; however, revenue growth was weak across businesses/geographies. We have raised our EPS estimates by 6-9% over FY2017-19 to bake in 2QFY17 beat and margin expansion; while lowering our TP to R140/share (from R150) as we trim our target multiple a tad (in line with correction in sector average multiples). Add stays.
Consolidated financials: TGBL posted a strong performance operationally aided by lower commodity costs (largely lower coffee prices) and cut in A&SP. Net operating revenues declined 3% y-o-y to R16.26 billion driven by price cuts and negative currency translation even though volume growth was positive. Ebitda grew strongly by 35% yoy (17% ahead of our estimate) to R1.9 billion and recurring PAT grew 49% y-o-y (46% ahead of our estimate) to R1.27 billion. EBITDA margin expanded 320 bps y-o-y to 11.7% aided by sharp 390 bps y-o-y expansion in GM and 70 bps y-o-y reduction in A&SP.
Standalone financials: domestic (tea) business posted weak revenue growth dragged by price cuts (revenues up 1% yoy); Ebitda grew 16% y-o-y to R848 million (10% ahead of our estimate) aided by 230 bps yoy expansion in GMs and 170 bps cut in A&SP (18% cut in absolute terms). Recurring PAT declined 21% y-o-y to R863 million due to a 34% y-o-y drop in other income.