by Suhani Adilabadkar

Tata Consumer Products houses a fair number of iconic brands, such as Tata Tea, Tata Salt, Tetley, Eight o’ Clock, Himalayan mineral water and Tata Sampann. The firm was created by de-merging the consumer products business of Tata Chemicals into Tata Global Beverages and re-christened Tata Consumer Products from 10^th February 2020.

Apart from its Indian presence, Tata Consumer Products Ltd (TCPL) has its footprints across UK, US, Canada, South Asia and Africa through its various subsidiaries. TCPL also has a 50:50 joint venture with Starbucks Corporation named Tata Starbucks Private Ltd and has completed the acquisition of the entire stake of PepsiCo in NourishCo, which is now its 100% subsidiary.

The street seems to be confident of this salt-pepper-tea story and is waiting for this food & beverages company to evolve into a full-fledged FMCG in the near future. The TCPL stock has doubled since 23^rd March 2020.

 Quick Takes:

• Revenue for Q1 FY21 stood at Rs. 2714 crore growing 43% YoY and operating profit jumped 82% YoY.
• PAT was reported at Rs. 389 crore in June quarter FY21 against Rs. 149 crore same period previous year rising 161% YoY.
• Salt revenues grew 11% YoY while pulses and spices delivered robust growth of more than 50%.
• TCPL is on track to realize initial estimates of 2-3% of combined India branded revenues over 18-24 months.
• Even with April sales significantly impacted by Covid-19 disruption, May and June reported high double-digit growth as Tata Tea Gold, Tata Tea Agni and spice mix continued its robust growth momentum.

A Stellar June Quarter

Tata Consumer Products reported very strong June numbers with revenue, PAT and operating profit all rising by double digits. Revenue for Q1 FY21 stood at Rs. 2,714 crore compared to Rs. 1,897 crore in the same period of the previous year, growing 43% YoY and 13% sequentially driven by strong momentum across all three segments - Indian beverages, Indian food and International beverages.

Operating profit stood at Rs. 482 crore in June quarter FY21 against Rs. 265 crore in the same period last year, rising 82% YoY aided by better realizations, favourable commodity costs and rationalization of discretionary expenditure. Consequently, operating profit margin expanded 382 bps YoY reported at 17.78% in Q1 FY21 compared to 13.96% corresponding June quarter previous year. PAT was reported at Rs. 389 crore in June quarter FY21 against Rs. 149 crore same period previous year rising 161% YoY.

A Balanced Product Mix

Tata Consumer Products is an integrated food & beverages company, encompassing the largest salt brand and 2^nd largest tea brand in India, the 4^th largest tea brand in the UK, the largest tea brand in Canada, the 4^th largest R&G (roast & ground) coffee brand in the US, leading national brand in pulses in India: Tata Salt, Tata Tea, Tetley, Eight O’ Clock and Tata Sampann, under the same roof. TCPL is also the second largest branded tea player globally. The merger after-effects have been strongly positive and despite Covid headwinds, revenues were up 35% YoY, operating profit jumped 77% YoY while PAT was impacted by goodwill impairment cost of Australia business, tea business in US and merger integration costs in Q4 FY20.

June Quarter FY21 was also on the same lines, with broad-based growth across all business segments, starting with the Indian beverages segment (37% revenue mix) which grew 11% YoY. Even with April sales significantly impacted by Covid-19 disruption, May and June reported high double-digit growth as Tata Tea Gold, Tata Tea Agni and spice mix continued its robust growth momentum. The Indian foods segment (22% revenue mix) jumped 19% YoY as high double-digit growth was reported every month of June quarter, despite operational challenges. Salt revenues grew 11% YoY registering record sales volumes in months of May and June while pulses and spices delivered robust growth of more than 50%. Coming to international beverages (with a 32% revenue mix), revenues increased 15% YoY with UK, US and Canada growing 12%, 26% and 32% YoY respectively in Q1 FY21 driven by pantry loading and retailer re-stocking.

Merger Benefits and Covid Tailwinds

Pani Puri is a distant dream as a focus on hygiene and immunity have completely overtaken our consumption behaviour. No family reunions, birthday parties, impromptu shopping and movie exploits, even as 25-30% of restaurants have shut down their businesses since April.

The food & beverages industry which fills up our kitchen shelves is around Rs. 30 lakh crore in India, segmented into ‘in-the-kitchen’ segment, comprising staples, spices and condiments, dairy, ‘on-the-table’ segment constituting spreads, sauces etc and ready to eat or snacks also known as ‘on-the-go’ segment.

The F&B industry across all these segments is presently witnessing a shift in consumer preferences, demanding healthier, superior quality products at affordable price points. For TCPL, Covid could probably not have happened at a better time.

Post-merger (February 2020), TCPL has a diversified branded consumer products portfolio, wider distribution reach, higher cost efficiencies due to merger synergies, strong balance sheet, low debt equity ratio and the Tata brand – helpful armour indeed to ride out the Covid storm. So far, this has delivered double digit growth in the past two quarters.

The Tata Starbucks stores in India were however closed from 22^nd March till mid of April, a significant impact. Nourish Co was also hit, as most liquid products are consumed out of home and tea and coffee plantations in India were closed till mid-April.

 Coming to merger benefits, starting with the product portfolio, with tea, coffee and salt already in drivers’ seat, TCPL is focussed on its staple and spice brand, Tata Sampann and ready to eat new foods category currently with low distribution but very high growth potential. With distribution network presently, at 2.5 mn outlets and direct reach of about 4 lakh-5 lakh outlets, the company aims to double its direct reach in the next 12 months. Moving to synergies, TCPL is on track to realize initial synergy estimates of 2-3% of combined India branded revenues over the next 18-24 months.

The cash position is strong, about Rs. 2000 crore and debt equity ratio low at 0.8 as on 31^st March 2020. Sunil D’Souza, MD and CEO, Tata Consumer Products Ltd, said, “In the longer term, obviously, the intention is to become a full-fledged FMCG company, playing across multiple categories. But first, we've got to get our own integration in place, build the categories that we operate in, move out into adjacencies where we can leverage the capabilities that we have and then branch out into a full FMCG piece, one step at a time”.

It remains to be seen how Tata Consumer will compete effectively as its FMCG competitors take this young business on post-Covid.