Morgan Stanley downgrades Tata Global Beverages

Our Bureau Mumbai | Updated on November 21, 2012 Published on November 21, 2012

Morgan Stanley has downgraded Tata Global Beverages to underweight, citing poor earnings visibility, lack of pricing power, lower return ratios, and high valuations, as the main reasons.

The brokerage firm had assigned a rating of ‘equal weight’ earlier to Tata Global Beverages (TGBL). It has added that the recent re-rating on cyclical uptrend and the Starbucks joint venture is not sustainable.

However, the brokerage firm has set a target price of Rs 140/ share, upping the price target from Rs 101 earlier.Shares of TGBL have nearly doubled after its decision to team up with Starbucks. The joint venture has managed to flag off three coffee shops in Mumbai.

The stores feature Espresso sourced and roasted locally from India through the coffee sourcing and roasting agreement with Tata Coffee.

The brokerage firm has said, “Although we view the management change and the joint venture with Starbucks as incrementally positive, we expect the contribution to earnings to be limited.”

“There is lack of visibility in the international business for TGBL, and the international business remains vulnerable to input cost pressures. To that extent, the stock move seems exaggerated to us, and we would use this opportunity to book profits in TGBL,” added the report.

Focus on consumer brands

TGBL maintains a strong focus on consumer brands, more than 90 per cent of the turnover is delivered by its branded products.

Published on November 21, 2012
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