Tata Global Beverages (TGB) has
moved from levels of 250 to current 400 in the last 6 months or so, and yet
holds promise of more in the coming period. And there are multiple triggers for this.
TGB is likely to be a big beneficiary
of the acquisition (or merger) of the consumer products business of Tata Chemicals
which is its sister concern, belonging to the same group. The company also
plans to enter new areas of consumer staples, beverages (fruit juices etc), macro
snacks (for e.g. Dhokla, a favourite snack in large parts of west India) etc.
Currently the company’s key products are primarily tea and coffee which have a
market of about 27000 crores. The addressable market of consumer staples is
about 77000 crores. This effectively means that the company has a potential
market opportunity of 50000 crore, which would make it nearly 3 times its
current market size.
The current valuation of TGB is
around 40 P/E due to its primary business of tea and coffee. However, going
forward, this will not be the case. Due to its changed business profile, it is
likely to earn the valuations of a pure FMCG company than just a tea-coffee company. FMCG majors such as
HUL and Dabur trade at PE of above 50 times their FY 21 earnings. In spite of
the current rally of more than 50% in just 6 months (110% in 1 year), this
trades at a P/E 20% less than that of its would-be FMCG peers.
Since it has already run up quite
a bit in a short period, there may be a time correction in this stock which may
lead it to consolidate at the current levels till the re-structuring in
completed in the next 6 months or so and it becomes a full-fledged FMCG company. In
fact, it is likely to be re-named as Tata Consumer Products in its new avatar,
signalling its changed business profile. As more products in new business areas are
launched, the valuations are likely to move in line with peers along with a
catch-up rally, giving an upside of more than 20% even from current levels
within the next year.
