Buy Tata Tea, target of Rs 853: Sharekhan

Sharekhan has maintained its buy rating on Tata Tea with a price target of Rs 853 in its March 26, 2009 research report. “In line with the strategy, Tata Tea, together with European Bank of Reconstruction and Development (EBRD), has decided to acquire a 51% stake in Grand, a leading player in the Russian economic beverage segment.

Tata Tea (through one of its overseas subsidiaries) and EBRD will hold a 33.2% and a 17.8% stake respectively in the company. The balance 49% stake will remain with the founding promoter of the company (Dr Alexander E Borisov).”

“With tea volumes growing moderately in the domestic and international markets, we expect Tata Tea’s new initiatives, such as the launch of green and herbal tea, the foray into non-carbonated beverage segment and the entry into new geographies, to drive growth at the consolidated level going forward. However, in the near term, the company’s profitability would remain under pressure, as the prices of its key raw materials (especially raw tea) shall remain firm. At the current market price, the stock trades at 8.7x its FY2010 earnings estimate and EV/EBIDTA of 3.2x. We maintain our Buy recommendation on the stock with a price target of Rs 853,” says Sharekhan’s research report.

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