|Recommendation||CMP||Target Price||Time Horizon|
|Accumulate||Rs. 685||Rs. 905||12 Months|
Tata Consumer Products own the well-loved brands – Tata Tea, Tetley, Tata Salt, Eight O’Clock Coffee, Himalayan Water and emerging brands like Tata Sampann, Tata Soulfull, Tata Gluco Plus and Tata Water Plus. It has significant market presence and leadership position in many global markets. Tata Tea is 2nd Largest Tea Brand in India and Tetley is the 4th largest tea brand in UK & largest tea brand in Canada with 28.2% market share. Teapigs is the super premium brand in the UK with 67% market share. Tata Consumer Out-of-home retail comprises tea-cafes and premium cafes in partnership with Starbucks in India.
|Market Cap. (Cr.)||65485.46|
|52 Wk. high/low||889.00/564.45|
|Book Value (Rs)||158.11|
Share Holding Pattern %
|Non Promoter Corp.||1.62|
|Public & Others
Key Investment Rationale:
In November 2021, Tata consumer acquired 100% stake in Tata SmartFoodz for Rs. 395 Cr. in a strategic move to expand into value added categories. Acquisition of Tata Q brand will help the company to foray into the higher margin Ready-to-Eat (RTE) category. Besides expansion of its product portfolio, the company is expected to benefit from the rapid pace of growth in the RTE segment.
Tata Sampann and Nourishco brands of the company registered strong volume growth of 39% and 100% plus YoY respectively during Q3FY22. Company launched Tata Fruski in new markets, and Tata Nature Alive, a premium mineral water product in select markets in the north.
Tata Consumer had a decent third quarter in FY22 with 6% top line, 28% EBITDA and 22% net profit growth despite a high base of the previous year which was up by 23% YoY
Despite the inflationary pressure Company was able to improve its margin with EBITDA margin expended from 13.9% in Q2FY22 to 14.6% Q3FY22.
Tata consumer is gaining market share in the core categories of tea and salt with 476 bps YoY market share increase in salt and 89 bps YoY increases in branded tea category during Q3FY22.
Tata Starbucks recorded revenue growth of 60% YoY in Q3 on a relatively low base of last year due to Covid. Compare to the same period in FY20 revenue grew 37%. It opened 13 new stores between October and December and entered two new cities. With the reduction of Covid cases each day, Footfall of customer in Starbucks will also increase.
Tata Consumer Products Limited is a fast-growing food and beverage Company, with second largest presence in Tea globally and leadership position in Salt category in India. The company is undertaking product innovations and investing in its brands which are expected to improve its operating profitability in the future. At the consolidated level TCPL’s capital structure remains comfortable with Debt to Equity Ratio of 0.05 at the end of September, 2021. On performance front we expect company to report EPS of Rs.11.2 for FY23E, at CMP of Rs.685 PE works out to be 61.1x. Hence, investors can accumulate the stock between Rs.600 – Rs.650 for the target price of Rs.905. Time frame should be 9-12months.
Leading Tea Brands:
BrandsGood Earth – International presence
Teapigs – 67% market share in UK
Leading Coffee Brands:
Eight O’Clock Coffee – largest coffee R & G brand in USA
Tata Coffee Grand leverages the deep heritage of Tata in coffee
Leading Beverages Brands: In May 2020, Tata Consumer Products acquired PepsiCo’s stake in NourishCo Beverages Limited—a 50:50 joint venture between the two companies that housed brands such as Himalaya packaged water and GlucoPlus.
Himalayan Natural Mineral Water – #1 natural mineral water brand
Tata Copper Plus Water
Tata Nature Alive – Launch of Mass Premium Natural Mineral Water
Leading Food Brands:
Tata Salt – Largest salt brand in India Premium portfolio value contribution grew 3.5% in FY 20-21 (1.8% in FY 19-20
Tata Sampann – National brand in pulses, spices and mixes . Strengthened leadership in branded Poha category on E- Commerce channels by driving consumer upgradation and conversion to the larger pack SKU and building consumer stickiness
Tata Soulfull – In FY21, acquire a 100% stake in Kottaram Agro Foods—the maker of Soulfull brand of breakfast cereals and millet-based snacks. It is among the fastest growing in India’s ‘better For you’ packaged foods market.
Tata Q- In line with strategic priority of exploring new opportunities for growth, TCPL acquired Tata SmartFoodz Ltd. (TSFL), the owner of the brand “Tata Q” in November’21. Tata Q brand will help the company to foray into higher margin Ready-to-Eat (RTE) category
Out of Home: Starbucks – TATA Starbucks Private Limited is a 50:50 joint venture company, owned by Tata Consumer Products and Starbucks Corporation that owns and operates Starbucks outlets in India. The outlets are branded Starbucks “A Tata Alliance”.
- India Beverages revenue includes India Packaged Beverages + NourishCo (subsidiary effective May’2020), but volume doesn’t include Nourishco volumes
- India Foods revenue includes Tata Soulfull (subsidiary effective Feb’21) and Tata Q (subsidiary effective Nov’21).
- India Food Business Registered strong volume growth of 12% during 9MFY22 led growth in Tata Sampann and Tata Salt Brand
- The Company is focusing on growth in Indian market with new launches across foods & beverage portfolio.
|Particulars (in Rs. Cr.)||202112||202109||202012||QoQ||YoY|
|Revenue from Operations||3208.38||3033.12||3069.56||5.8%||4.5%|
|Raw Material Consumed||1161.58||1232.02||1392.56||-5.7%||-16.6%|
|Purchase of Finished Goods||551.64||485.15||528.4||13.7%||4.4%|
|Selling & Administrative Expenses||245.34||211.88||209.71||15.8%||17.0%|
|Profit After Tax||287.68||261.39||237.03||10.1%||21.4%|
|EBITDA Margin||14.4%||13.6%||11.8%||76 bps||26 bps|
|PAT Margin||9.0%||8.6%||7.7%||35 bps||12 bps|
Key Takeaways from Q3FY22 results and conference call
The company’s two-year revenue CAGR was 13.4%. India Beverage segment and India Foods segment reported volume growth of 6% and 4%, respectively.
With tapering of tea inflation, the profitability in India Tea business has improved.
The company has acquired Tata SmartFoodz Ltd (TSFL) which owns the brand Tata Q. It will result in premiumizing the product portfolio. The company will be able to capitalize on its reach in Modern trade and E-commerce.
The company has relaunched Tata Tea Agni during the quarter. It has also introduced Tata Tea Agni Adrak chai, new variant. Tata Tea Gold Care now accounts for 5.2% of sales of Tata Tea Gold.
The company has introduced a premium variant of Salt as Tata Salt SuperLite. As it is taking price hikes to pass on increase in costs, it has vacated some price points and has introduced Shuddh by Tata Salt at lower price points.
The company has also introduced dryfruits in 100% pure premium range under Sampann brand. Its earlier launch of Sampann Poha has been a success.
Tata Salt margins were impacted by higher input costs, higher power & fuel costs as well as freight costs.
TCPL has also introduced Tata Nature Alive mass premium natural mineral water during the quarter. Nourishco reported revenue growth of 91% (Two-year CAGR: 53%). Himalayan water turned EBIT positive during the quarter.
While third covid wave has resulted in short term challenges for Tata Starbucks and Nourishco, the company is optimistic about a quick normalization. The company is working towards structural simplification of its International business.
The branded Indian tea market is estimated to be Rs 26,000 Crores, with unbranded constituting 30-35% of the overall market (by value). The branded market grew by 8% during the year FY21 despite a decline in the initial months due to the impact of lockdowns, led by tea price inflation. Tea is the favourite Indian beverage, and continues to see growth across all tiers through upgradation from loose to economy branded tea and movement ups the chain to Premium and Super Premium Teas.
Tata Consumer strengthened its leadership position in the Tea market by improving its volume market share (MAT) to 20.4% (0.6% pts improvement from last year) and value market (MAT) share to 21% (1% pts improvement compared to last year) in FY21.
The Indian staples industry is largely unorganised with share of branded players at less than 10%. The overall health, hygiene and wellness concerns are expected to give a fillip to the shift from loose and unorganised to branded consumption of food.
During FY21, Tata Salt strengthened its marke leadership position with value share increasing to 33% (Nielsen) in the packaged salt category. Tata Salt strengthened its market leadership position with value share increasing to 33% (Nielsen) in the packaged salt category in FY21
India Ready-To-Eat Food Market:
The Indian ready-to-eat food market stood at $261 million in 2017 and is projected to grow at a CAGR of over 16% during 2018-2023 to reach $647 million by 2023. Anticipated growth in the market can be attributed to rising urbanization, increasing disposable income of middle-class population and changing taste preferences of Indian consumers
India Bottled Water Market
India bottled water market was valued over USD 2434 million in FY2021 and is expected to grow at an impressive CAGR of 13.25%. 80% of which is unorganised — could see a de-growth over a period of time. Key brands include Bisleri, Bailley, Kinley, Aquafina, Himalayan, Oxyrich, Rail Neer and Vedica, to name a few. Bisleri has the largest market share and is bottled across over 120 plants in India, followed by Kinley, Aquafina and Bailley.
Tata Global Consumer is strengthening its packaged drinking water portfolio. It recently introduced Tata Nature Alive mass premium natural mineral water during the third quarter with Himalayan Natural Mineral Water and Tata Copper Plus Water was already in portfolio.
|Particulars (in Rs Cr.)||H1FY22||FY21||FY20|
|Equity & Liabilities|
|– Share Capital||92.16||92.16||92.16|
|– Reserves & Surplus||14500.59||14442.35||13722.7|
|– Minority Interest||1102.79||1092.53||1092.47|
|Total Non Current Liabilities||1585.17||1534.37||1616.67|
|– Long Term Borrowings||632.01||676.64||1086.63|
|– Deferred Tax Liabilities(Net)||658.75||570.16||316.03|
|– Other Long Term Liabilities||97||95.11||30.79|
|– Long Term Provisions||197.41||192.46||183.22|
|Total Current Liabilities||2510.78||3094.46||1978.6|
|– Short Term Borrowings||536.16||957.43||425.78|
|– Trade Payables||1505.41||1625.47||943.99|
|– Other Current Liabilities||371.6||409.85||516.42|
|– Short Term Provisions||97.61||101.71||92.41|
|Total Equity & Liabilities||19791.49||20255.87||18502.6|
|Total Non Current Assets||13326.11||13207.24||12820.54|
|– Fixed Assets||4507.61||4539.41||4417.56|
|– Intangible Assets||10374.84||10380.88||10105.04|
|– Intangible Assets under Development/R&D||10.98||19.68||7.79|
|– Capital Work in Progress||66.95||93.17||87.56|
|– Goodwill on Consolidation||7601.22||7596.57||7333.83|
|– Non Current Investments||676.92||482.73||489.3|
|– Deferred Tax Asset(Net)||37.28||38.05||29.56|
|– Long Term Loans & Advances||88.79||96.79||54.67|
|– Other Non Current Assets||414.29||453.69||495.62|
|Total Current Assets||6465.38||7048.63||5682.06|
|– Current Investments||175.38||323.16||833.55|
|– Trade Receivables||651.99||761.32||922.41|
|– Cash & Cash Equivalents||2564.11||3074.88||1621.46|
|– Short Term Loans & Advances||222.12||185.12||116.54|
|– Other Current Assets||569.85||454.99||476.07|
Cash Flow Statement
|Particulars (in Rs, Cr. )||H1FY22||FY21||FY20||FY19|
|Cash and Cash Equivalents at Beginning of the year||1773.18||889.34||737.48||698.17|
|Net Cash from Operating Activities||542.82||1656.37||1082.23||209.87|
|Net Cash Used in Investing Activities||-466.46||-408.41||-672.77||73.28|
|Net Cash Used in Financing Activities||-910.46||-426.03||-308.33||-223.73|
|Net Inc/(Dec) in Cash and Cash Equivalent||-834.1||821.93||101.13||59.42|
|Cash and Cash Equivalents at End of the year||945.97||1773.18||889.34||737.48|
Key Financial Ratios
|Debt Equity Ratio||0.08||0.11||0.11||0.15||0.15|
|Interest Coverage Ratio||16.83||20.09||14.6||15||18.61|
Tata Consumer has strong liquidity with Cash & Cash Equivalents stood at Rs. 2564 Crore and have low Debt to Equity ratio of 0.08 at the end of December, 2021
Debtor Days improved from 24 days in FY21 to 19 days in H1FY22
Company has strong track record of Positive Operating Cash flow
Company has low ROCE and RONW which is expected to improved with increase in Profitability from new product mix.
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