Tata Consumer Products Ltd. share price target

Initiating coverage on Tata Consumer Products Limited (TCPL) earlier named Tata Global Beverages with a Buy rating and PT of Rs. 484. TCPL will become strong play with integration of Tata Chemicals' consumer business; share of consistently-performing India business in revenue to rise to 61% from 48%, margins too can rise 60-80 bps in the near term. Appointment of consumer expert Mr. Sunil D'Souza as MD & CEO improves earnings visibility; consolidated revenue and earnings (including TCL's consumer business) to clock CAGR of 10% and 20% over FY2020-23E....

He believes that TCP is well positioned to ride Indias INR30t consumption wave as it has renewed its focus on the consumer products space due to having (a) a portfolio of market leading and high growth potential brands, (b) deep understanding of consumers, (c) wide distribution network of over 2.5m retail outlets, and (d) the legacy of the Tata group. According to Mr. DSouza, TCP is targeting to realize cost synergies of INR600-700m and the company is well on Additionally, with the combined scale (Tata Chemicals and TCP), he believes the company would drive efficiencies including superior terms of trade with channel partners, supply chain opportunities and proficiency in areas such as marketing and packaging. Currently, the company has two strong legs in the India business targeting double-digit growth, driven by cross-selling between Tata Chemicals and TCPs distribution channel.

With the merger process completed, Tata Consumer Products (TCPL) reported its first quarter of consolidated numbers. Revenue growth of 35% included merged foods business sales of | 524 crore. On a comparable basis, revenue growth was 6% led by 3% volume growth. The company has not seen any substantial negative impact of lockdowns given tea & salt categories are part of essentials. International tea business & US coffee business grew 8% (3% volume growth) & 15% (entirely volume), respectively, due to stocking up by consumers. Operating margins...

We revise our FY21 estimates upwards on account of recent merger with TCL's consumer products business. However, we believe the uptick in demand will take its course of time and maintain HOLD rating on the stock with a revised target price of Rs. 418 based on 36x FY22E EPS. Revenue growth aided by steady rise in volume Company's overall revenue increased to Rs. 1,962cr (+2.6% YoY), with major growth from non-branded segment (+20.0% YoY to Rs. 239cr). Amongst geographical segments, India remains major revenue contributor (49%) with revenue growth of 6%...

India volumes, non-branded business aid growth momentum India tea volume and revenue growth was 7% and 6%, respectively, led by strong double-digit growth in Tata Tea Agni, Spice Mix and robust growth in Tata Tea Premium. EBITDA margins improved 96 bps YoY to 13.8% on account of favourable commodity prices. We expect 7% revenue CAGR over FY19-22E driven by market share gains, inorganic growth initiatives and premiumisation. We expect margins to stabilise at 14-15% led by cost saving initiatives and premiumisation strategy. On the other hand, non-branded...

4 February 2020 TGBs 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%. 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 by volume growth of 5% YoY. EBITDA was up 22% YoY at INR2.4b (our TGB standalone revenue increased 5% YoY to INR9.3b due to 7% YoY 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.

India business to gain led by robust tea segment growth TGBL commands 20% market share in the Indian tea segment. It expects to continue to grow above industry led by new launches and focus on premium tea varieties. The branded tea business has delivered robust volume growth of 8% in H1FY20 driven by market share gains, inorganic growth, product innovation and focus on premiumisation. Moreover, it would be benefiting from a shift from unorganised to organised sales on the back of strong marketing campaigns (Jaago Re) and higher sales of new variants (Elaichi,...

Besides, the merger of Tata Chemicals (TTCH) consumer business with itself marks the companys entry into an additional segment of staples with an addressable market size of INR770b (apart from the current addressable market of INR270b in tea and coffee). Currently, the India brand business contributes 50% to TGBs consolidated revenue, which should increase to ~60% post amalgamation of TTCHs consumer business. Plans are afoot to deepen its core by strengthening its leadership position in tea and salt and aggressively expanding its new products (spices, pulses, liquid beverages, packaged foods etc.) The merger of TTCHs consumer business with TGB is in sync with the Tata groups focus to create a single FMCG-focused company. The merger of TTCHs consumer business with TGB offers multiple synergies, including higher outlet coverage, focused new product development, stronger cash flow generation and scale efficiencies.

Consolidated sales increased 4.2% YoY to | 1,834.1 crore, mainly driven by 16% growth in the non-branded business. The tea business reported moderate growth of 4% whereas the coffee business declined 4%. On the volume front, the India tea business reported healthy growth of 8%. Operating margins expanded 333 bps to 12.8% benefitted from benign commodity costs and control over operating overheads. PAT declined 17.1% YoY to | 152.5 crore on account of lower profit from associates. Adjusting for one-offs, net profit increased 45% YoY....

Strong India revenue & product mix saves the day TGBL's consolidated turnover for first quarter 2020 stood at Rs. 1,897.1 cr (5.2% YoY). Geography-wise major revenue contribution was from India at 54% from brands such as Tata tea, Tetley, Himalayan, Fruksi, and Tata Cha etc. Meanwhile contribution from US was 22% followed by Europe and Others at 17% and 7% respectively. Non-branded business revenue surged 25% YoY at Rs. 243 cr; major contributor was Tata Coffee (incl. Vietnam) (82%) at Rs. 204 cr (30% YoY), while rest of the segments contributed 18 % of non-branded revenue. In India overall tea sales rose to Rs.969 cr (7% YoY)...