TATA

CONSUMERS

EQUITY RESEARCH
REPORT
 ABOUT THE
STOCK
Tata Consumer Products (TCPL) is one of the major
FMCG companies present in tea, coffee & other
beverages in India, UK, US, Canada & some other
geographies. In India, it also has salt, pulses, spices &
other foods products. Its subsidiary NourishCo is
present in packaged water & other beverages. The
company is in a JV with Starbucks, which has 268
stores in India.
• The company has 2000+ distribution directly
reaching 1.3 million outlets in India. This will be
increased to 1.5 million outlets by March 2023
• TCPL also increased its rural/ semi urban
distributors 4x to 8000+ after the consolidation of
consumer business
 ACCUMULATE RECOMMENDATION /COMPANY UPDATE
Rating: Outperform*
Price(13/01/2023) : 752.90
Target Price : 1,000 • Q2 Results: TATA Consumers reported a
52 week Price Range : 650.75-861.35 strong Q2 results, with profit jumps 22.4%
Market Cap : 698.99 Billion INR YoY to Rs 328 crore, while revenue grow
Enterprise value : 70,302.75 Crore nearly 11% to 3,363 crore. The consolidated
*Target Price is for 15 Months.(5 Quarters)
earnings before interest, taxes, depreciation,
and amortization (EBITDA) for the quarter
rose 5% on year to Rs. 434 crore.

• Tata Starbucks: It is a joint venture between

Price Performance of 1 Year
Tata Consumer Products and Starbucks
Corporation of America wherein the
company is working towards expanding the
presence of Starbucks retail coffee stores in
the subcontinent of India. Presently, it
operates 221 Starbucks stores in the nation.

• Geographical Presence: The Indian food &

Figure 1 – TATA CONSUMERS Stock Price Performance
beverage business accounts for about 62% of
branded business revenues of the company.
The rest 38% revenues comes from business
in geographies like Canada (4%), USA (18%),
UK & Europe (14%), Middle East (<1%) &
Australia (2%).
INVESTMENT THESIS
As FMCG sector is itself the fourth-largest sector in the Indian
Macroeconomics economy. Further the Union government’s Product linked
& Industry Trend. incentive(PLI) scheme gives companies a major opportunity
to boost exports with an outlay of US$ 1.42 billion. Rising
digital connectivity in cities and rural areas is driving the
demand for FMCG(through e-commerce portals). Further e-
commerce segment is forecast to contribute 11% to the
overall FMCG sales by 2030. Investment in this sector attract
investors as FMCG products have demand throughout the
year. The sector witnessed healthy FDI inflow of US$ billion
from April 2000-March 2022.

Figure: 2 Source: Kanvic Analysis and Research

 Tata Consumer Products has been consolidating its existing
Review and Support
consumer operations under one umbrella to build a strong
growth of TCPL.
consumer business in the FMCG space hereby obtaining a
consolidation synergy benefits. Refer Fig. 3.
The core business for Tata Consumer Products is primarily
driven by tea and salt. With the integration of Tata Chemicals’
consumer business in 2020, the combined entity is likely to gain
a better market position and distribution network. Further,
consumers’ rise in branded consumption is expected to benefit
the company. Here is how:

TEA: According to multiple reports, 60% of the market share in

India is in unbranded tea consumption. For the two leading
players in the industry – Tata Tea and HUL, this gives a lot of
room for expansion. Considering Tata Tea’s presence across the
tea segment – economy, mid-income, and premium classes, it
could be easier for the company to penetrate the market when
compared to HUL or other regional players.

Salt: Tata Consumer Products’ Salt is a dominant player in the

salt market in India. Though there is competition, Tata Salt holds
a leading position as many industry experts.
 This is thanks to its presence across all consumer
segments – economy (Tata salt and i-shakti), mid-
income (Tata Salt Plus, Tata Lite) and premium (rock
salt and black salt). And there is still scope for
expansion in tier II and tier III cities where loose and
unbranded salts are still prevalent. Refer Fig: 4

Figure 3. Source: Groww

Figure 4. Source: Groww

 •While the company is financially sound and has set the strategy
(consolidation) for the future, the synergy benefits that the
Summary company expects may not be immediate. It is likely to start giving
out returns in the next 2-3 quarters.
•The company operates in a highly competitive space. Therefore,
distribution is key in retaining or increasing market share. There is
a possibility that the company, in select segments, may find it
difficult to expand. For instance, in the case of spices or coffee,
where the dominance of regional players is high.
•The competition is likely to intensify, with players like ITC and
Adani stepping up their FMCG play. Additionally, existing players
like HUL are to be considered.
•Factors such as a rise in inflation (where the company cannot
pass on the price increase) and a spell of bad weather (for its tea
and coffee plantations) could also impact its business operations.

Figure 5. Source: Groww

CATALYSTS
The India packaged beverages business saw a 7% fall in revenue
CATALYST 1:
due to pricing corrections and overall softness in the category.
However, the company continued to record market share gains in
volume terms in branded tea. “We continued to drive
premiumization, as the premium tea portfolio continued to grow
faster than the base portfolio,” the company said in a release.
Further, the coffee business continued its strong performance
with revenue growth of 39% during the quarter.

On the international front, the beverage business revenue

CATALYST 2:
grew by 7%. In the UK, Tata Consumer became the third
largest branded tea company by market share, displacing
Twinning.

Synergy benefits: The company has a clear strategy to

CATALYST 3: become an FMCG giant in the market. This is clear
from the consolidation of its business operations, and
it is likely to start delivering benefits going forward.
 SWOT ANALYSIS
S W
STRENGTHS WEAKNESSES
• Company with high TTM EPS growth. • Declining Net Cash Flow: Company
• Growth in Net Profit with increasing not able to generate net cash.
Profit margin • High promoter stock pledges
• Company with Low Debt.
• FII/FPI increasing their stake.

O T
OPPORTUNITIES THREATS
• Tata is a brand that many Indians • Rising competition in the FMCG
are aware of and associate with. Sector.
Such brand recognition would help
increase the market reach and build
a sustainable in the FMCG Sector
The ACQUISITION OF BISLERI
Tata Consumer Products Ltd will buy Bisleri
International for up to ₹7000 crore, the
Economic Times newspaper reported on
Thursday, citing the packaged water maker's
chairman Ramesh Chauhan.
The Tata Group houses its consumer business
under Tata Consumer Products Ltd (TCPL) which
also sells packaged mineral water under the
brand Himalayan and with brands as Tata Copper
Plus Water and Tata Gluco in the hydration
segment.
According to industry observers, if the deal is finalized, it would provide the Tata group
FMCG arm a larger play into the fast-growing bottled water segment. This Further shows the
company’s aggressive steps to level up there game in the FMCG Sector.
The Indian bottled water market was valued at over USD 2.43 billion (around ₹19,315 crore) in
FY2021, said a report from market research and advisory TechSci Research.
It is expected to grow at a CAGR of 13.25 per cent on account of increasing disposable
income, rising health and hygiene awareness, and increasing product innovation, the report
added.
KEY FINANCIAL SUMMARY
Key Financials FY20 FY21 FY22 5 Year FY23E
CAGR%(FY17-
FY22)
Net sales 9,637.4 11,602.0 12,425.4 12.9 13,633.9

EBITDA 1,292 1,543.8 1,718.8 16.8 2,120.5

EBITDA Margin % 13.4 13.3 13.8 - 15.6

Adjusted Net profit 641.8 932.6 1,015.2 17.4 1,379.7

EPS (Rs) 5.0 10.1 11.0 8.9 15.0

P/E 155.4 76.9 70.4 - 51.8

RoNW % 4.6 6.4 7.0 - 8.8

RoCE (%) 6.9 8.0 8.4 - 10.3

SOURCE: ICICI DIRECT RESEARCH

 COMPARABLE PUBLIC COMPANY
STOCK CURRENT PE TTM Price MARKET NET PROFIT PRICE TO
PRICE to Earning CAPITALIZATION ANNUAL YoY BOOK VALUE
GROWTH %
Nestle India 19784.35 88.11 190,752.2 3.00% 91.52
Ltd.

Britannia 4336.1 66.04 104,442.9 -18.19% 40.4

Industries
Tata 752.9 65.09 69,945.28 9.23% 4.26
Consumers

GlaxoSmith 10753.65 39.13 45,225.01 40.38% 11.05

Kline
Consumer
Bikaji Foods 433.45 - 10,815.01 -13.59% 13.18
International
 Important Metrics and Graphs

Figure 6. Source: Internet Figure 7. Source: Internet

• An exponential increase in the estimated • Stock has always outperformed the benchmark
sales further supports our conviction. index BSE SENSEX.
 INVESTMENT THESIS, CATALYST
AND RISK
We continue to believe that Tata consumer is currently trading at a normalised PE and the upside
we predicted is fairly possible irrespective of all the ongoing noise with respect to the recession
concern. Though recession have and can further impact the economy but being fairly invested will
not make us a fool.
Purchasing power: Despite continuous news flow with respect to the recession fair, there have
not been any significant impact on the purchasing power of the people living in the economy.

Investment Risk:
• As of now the commodity market have showed a reasonable correction in the prices of the
commodities but any aggressive increase in the price of the commodities especially a rise in
key agri-commodity will hamper the margin of the company.
• Other company-specific and industry-specific risks include (1) Growing competition in the
specialty pharmaceuticals space; (2) the ability of management to execute on new
acquisitions (3) the ability to grow organically and keep the product pipeline robust; (4)
potential regulatory delays, rejections, or failures of pipeline products; (5) economic
sensitivity of any self-pay products or weakening consumer demand; (6) domestic or
international pricing pressures for marketed products; and (7) failure to execute on new
product launches
Source: Internet