TGB’s performance was below our expectations, mainly due to lower-than-expected EBITDA at TGB overseas tea and TGB standalone (primarily because of higher ad spend). However, the gross margin expanded 140bp YoY to 46.2%. Consol. PAT increased 21% YoY to INR1.2b. While revenue was largely in line, EBITDA/PAT came in 11%/28% below our estimates. Accordingly, we cut our PAT estimate by 10% for FY20 but largely maintain it for FY21/22. Maintain ‘Buy’.
GB standalone revenue increased 5% Y-o-Y to Rs 9.3b due to 7% Y-o-Y volume growth (6% branded value growth). EBITDA margin expanded 100bp YoY to 13.8%; it is to be noted that company incurred higher ad spends during the quarter (8.4% v/s 6.1% in 3QFY19).
Tata Coffee consol. revenue/ EBITDA increased 8%/54% Y-o-Y to Rs 5b/INR851m. Volumes were up 14% Y-o-Y with domestic instant coffee volumes at 2,052MT (fifth straight quarter of over 2,000MT in volumes). TGB overseas tea revenue/EBITDA declined 5%/4% YoY. Volumes were down 1% Y-o-Y.
Capacity utilisation for the Vietnam coffee plant is expected to be 60-70% in FY20 and 80-90% in FY21.
The company opened 28 new Starbucks stores to take the total count to 174; it added a new city (Vadodara) to its portfolio. Tata Starbucks revenue increased 27% Y-o-Y in 3QFY20. Factoring in the miss to our estimates, we cut our PAT estimate by 10% for FY20 but largely maintain it for FY21/22.
Merger of TCL’s consumer business with itself marks the company’s entry into an additional segment of staples with an addressable market size of Rs 770 bn (apart from the current addressable market of Rs 270 bn in tea and coffee). We value TGB on an SOTP basis and arrive at a TP of Rs 439. Maintain ‘Buy’.
