Tata Consumer

28 Feb

Tea prices not going up further – Tata Consumer Products

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 16,794 (+0.8%) near the intraday high of 16,816. METAL (+4.9%), OIL & GAS (+2.6%) and IT (+1.1%) were the sectoral gainers, while AUTO (-0.7%), BANK (-0.6%), and FINANCIAL SERVICES (-0.5%) were the sectoral losers for the day. Among the NIFTY 50 stocks, HINDALCO (+7.2%), TATASTEEL (+6.3%), and POWERGRID (+5.6%) were the top gainers and HDFCLIFE (-3%), DRREDDY (-2.7%), and AXISBANK (-2.2%) were the top losers for the day.

Edited excerpts of an interview with Mr. Sunil D’Souza, MD and CEO, Tata Consumer Products (TCPL), with ET NOW on 25th February 2022:

  • 3QFY22 was a decent quarter for the company. Despite a high base of 3QFY21 TCPL delivered ~6%/28%/22% YoY growth in revenue/ EBITDA/ net profit respectively. The cash generation was up by ~30% and the working capital also improved by 14 days.
  • TCPL has seen good volume growth in India as well as market share gains across the beverage and food segment. The company increased its number of outlets and continues to focus on brand building. The advertising and promotional spending has increased. Strong growth in the food volumes was due to its focus on expanding Sampann which is the company’s foray into the pantry of Indian consumers.
  • The company is seeing a little bit of pressure on demand due to inflation but the company has different businesses and they are playing out differently. The company also tackled the demand situation in various ways, but the stress on the semi-urban and rural consumers dragged the demand under pressure.
  • The company seeing demand pressure on brands that cater to the mass markets, but the mass premium brands are performing well. Lower volume SKUs are doing better than higher volume SKUs.
  • TCPL continues to focus on the medium to longer-term to build a large food and beverage and FMCG business as well as company focusing on geographical expansion.
  • In the beverage segment, TCPL has good opportunities to gain market share and premiumise their portfolio and this is primarily driven by distribution, innovation, and brand building process. in the food business, TCPL launched lots of new products to cater to the market and Sampann will the big growth lever in the food business. The NourishCo which operates in ready to drink segment also growing more than ~100%.
  • Starbucks also performed well in 3QFY22 and delivered positive EBITDA from the last several quarters and in 3QFY22 posted positive EBIT and PAT. PBT reached breakeven levels. As the omicron wave subsides, the company expects Starbucks will grow at a good pace.
  • Despite all disruptions, volatility, and inflationary pressures the company delivered volume growth of 5% in tea.
  • Over the last 18-24 months company saw huge volatility in the tea prices, the prices were up by ~70%. The tea prices came down but it’s still higher by ~15%-20% from the pre-covid levels due to the droughts in Assam in May and November-20.
  • The company doesn’t expect the tea prices to go up further. After the 1st half of the year, one can expect to see softening in prices as the entire crop comes in. The company expects to be in a stable environment.
  • As the situation gets back to normal, the company expects good volume growth visibility and it has a clear focus on market share gaining and premiumization and aims of outperformance.
  • The international business delivered good margins in 3QFY22 despite the inflationary pressure of tea and coffee prices. To maintain its margins the company alters the prices as per the input costs trends accordingly.
  • Extended monsoons are impacting the salt drying process that leading to pushing up the prices. Oil-related inflation is affecting the food business but the company took price hikes of ~15% between August to November. As the volumes are starting to come back to normalcy company expects that they will maintain margins over there.
  • The company is in a comfortable space as they don’t expect any huge deviation in tea prices and is well placed in a good position on packaging, freight, and oil front.

Asset Multiplier Comments

  • We think the new products launches including premium and mass premium products will strengthen the product portfolio of the company. It is expected to drive the demand and open newer markets and growth opportunities for the company. TCPL is expected to maintain its leadership position in the salt business and focusing on strong selling and distribution channel will be the key positive for the company.
  • We belives that the company’s focus on Tata Sampann will strengthen its position in the underpenetrated Indian branded food industry and lead to gaining market share.
  • We think the commodity cost will continue to be an area of concern for the company because the Agri commodities such as tea, coffee, spices, and pulses have huge exposure to natural disasters, seasonality and market cyclicality and the unavailability of the raw material also might be a threat for the company.
  • The current Russian-Ukraine crisis affects the Indian tea exporters as Russia is the largest buyer of tea from India. The imposition of sanctions on Russia, depreciation of the Russian ruble, and increasing fuel cost badly affect the Indian tea planters and exporters.

Consensus Estimate (Source: market screener website)

  • The closing price of Tata Consumer Products was ₹ 716/- as of 28-February-2022. It traded at 62x/50x/42x the consensus EPS estimates of ₹ 11.5/14.4/16.9 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 843/- implies a P/E Multiple of 50x on the FY24E EPS estimate of ₹ 16.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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21 Sep

Focusing on expanding ‘ready to eat’ product portfolio- Tata Consumer Products

Update on Indian Equity Market:

On Tuesday, the benchmark Nifty 50 index ended at a record closing of 17,562 (+0.9%). The top gainers on the index were JSWSTEEL (+6.0%), ONGC (+5.2%), and BAJAJFINANCE (+5.1%). The laggards were led by MARUTI (-2.5%), BPCL (-1.47%), and HEROMOTOCO (-1.2%). Among the sectoral indices, REALTY (+3.6%), METAL (+2.6%), and IT (+1.9%) led the gainers while AUTO (-0.5%), CONSUMER DURABLES (-0.2%), and PSU (-0.1%), led the losers.

Excerpts of an interview with Mr. Sunil D’Souza, MD & CEO, Tata Consumer Products on 20 September 2021 with Economic Times:

  • Tata Consumer is seeing a month-over-month recovery in its packaged and out-of-home businesses on the back of higher consumer confidence and people venturing out. Packaged and out-of-home businesses are expected to recover to pre-pandemic levels.
  • Tata Consumer translates about 75% of their costs into the price. As the curve on cost starts coming down, margins will improve. The improvement will be visible on a quarter-on-quarter basis which is already visible in Q1FY22 vs Q4FY21.
  • The company is committed to delivering double-digit growth through portfolio growth, brand strengthening, and cost synergies. The company will maintain a tight focus on costs. This strong top-line growth will be driven by portfolio mix, pricing power, market share, cost reduction which then will translate into the bottom line.
  • Tea prices in September-20 were roughly 70% – 80% higher than September-19 during the disruption. As things settled down tea prices declined. The second spike in tea prices was observed in June-21.
  • Tea is a big part of the business; the company expects a gradual shift from unbranded to branded tea on the back of rising consumer income. In India, over 30-40% of the tea is unbranded. They aim to double their direct reach in 12 months and indirect reach in 36 months. They are on track to deliver of doubling their reach in 12 months. By end of September 2021, the company will be north of a million outlets covering directly.
  • The company has increased focus on brand strengthening by increasing ad & promotion expenditure by 50% YOY in 1QFY21 creating consumer pull towards the brands.
  • The company has initiated a series of launches with the most recent being Chakra Care and Gold care.
  • Tata Sampann products offer quality nutrition for which they are priced at a premium, providing a good price-value equation to the consumer.
  • Currently, the share of ‘ready to eat products’ is 5% of the revenue. As Convenience is a huge factor, Tata Consumer is looking forward to expanding their ‘ready to eat’ product portfolio by launching differentiated products in the organic and inorganic categories.
  • Tata consumer bought Soulfull as there is a huge opportunity to expand it. Soullfull has a great brand built and they have mastered how to treat millets and make great products out of millets. After the acquisition, the number of outlets that they used to service has increased to 50,000 from 10,000 outlets.
  • E-commerce sales were 2.5% of the total revenue pre-pandemic which grew to 5% in Mar-21 and 7% in June-21.
  • The company has launched its flagship stores in Mumbai and Delhi. They are trying to perfect the whole mix. Once they perfect it they’ll launch it across India.
  • In FY21 Starbucks added equal number of outlets as in FY20 and expects to continue the momentum. They were severely impacted by both the waves during the pandemic. However, the last 2 months were better and the company is already starting to see growth beyond pre-pandemic.

Asset Multiplier Comments

  • Tata consumer has been expanding into different FMCG segments with differentiated premium products giving it an advantage over its competitors.
  • A strong digital presence and product customization to meet the demands of diverse geographies will fuel future revenue development in the coming years.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Tata Consumer Products was ₹ 860/- as of 21-Sept-2021. It traded at 72x/61x/48x the consensus EPS estimate of ₹ 12/14/18 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 779/- implies a PE multiple of 43x on FY23E EPS of ₹18/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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05 Aug

Expects double-digit growth in India foods biz – Tata Consumer

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.2% up at 16,295. Top gainers in NIFTY50 were BHARTIARTL (+3.9%), EICHERMOT (+3.5%), and ITC (+3.1%). The top losers were SBIN (-3.3%), INDUSINDBK (-2.3%), and ICICIBANK (-1.8%). The top gaining sectors were METAL (+1.3%), IT (+0.8%), and FMCG (+0.6%) while the top sectoral losers were PSU BANK (-2.2%), MEDIA (-1.6%), and REALTY (-1.1%).

 

Expects double-digit growth in India foods biz – Tata Consumer

Edited Excerpts of an interview with Mr. Sunil D’Souza, Managing Director and Chief Executive Officer, Tata Consumer Products with CNBCTV18 on 4th Aug, 2021:

  • Tata Consumer delivered a decent 1QFY22 results led by strong domestic business performance. The gross margins were primarily affected due to high tea prices.
  • Even though the tea prices are high, management is comfortable going forward as the spike in tea prices is once in 5-10 years phenomena.
  • In 2QFY21 the prices were at peak and thereafter the prices have started to normalize. This gets reflected in margins of India Tea Business as it has improved from 19% in 2QFY21 to 26% in 1QFY22 and will continue the uptrend for couple of quarters.
  • The combination of price hike taken and tea prices going down will keep the company in good shape. The basic building blocks put in place and execution parameters lead the company to greater confidence.
  • Working capital is down by 2 days, free cash flow is 101% of EBITDA (excluding one offs), company has 8,20,000 direct outlets and plans to take the number to 1 mn by Sep-21.
  • The advertisement and promotion expenses are up 41% YoY as company plans to focus and strengthen the India brand building.
  • Expects strong double-digit growth for India food business on the back of Salt and “Sampann” portfolio.
  • The market share of Salt is 33-34% as compared to other players still at low single digit. The premium portfolio grew by 34% YoY and the mass category is expected to grow in South market where it is underpenetrated.
  • On margin front, India beverages business is under pressure because of high tea prices. With tea prices normalizing and price increases taken, company expects the margins to improve significantly sequentially.
  • Company is confident of coming out much stronger on the back of stronger share, stronger premium portfolio and better systems on execution in the market.
  • Tata Consumer was formed to fulfill the aspirations of Tata group in the FMCG space. Last 12-15 months have been focused on putting the systems together, building execution systems and getting distribution panel in order.
  • Company plans to expand the portfolio both organically and inorganically. Tata Consumer had acquired NourishCo which has performed well even during lockdowns. Integration of Soulfull has been completed in 1QFY22. The Company is in a strong position with net cash of Rs 21bn available for integration/acquisitions.
  • The contribution of E-commerce to total sales have increased from 2% to 7% currently in 15-18 months’ time. Company expects it to touch double digit soon.
  • Tata Consumer added 45-50 Starbuck stores in FY21 and has an ambitious target for FY22E as well.

 

Asset Multiplier Comments

  • Store expansion, acquisitions & premiumization strategy in salt & tea in India market is expected to drive sales & margins.
  • We believe the company is taking a step in the right direction by increasing the distribution reach, especially to rural areas. Increased distribution coupled with product launches will act as key growth drivers.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Tata Consumer was ₹ 768/- as of 5-Aug-21. It traded at 61x/ 50x/ 42x the consensus EPS estimate of ₹ 12.3/15.1/18.1 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 743/- implies a PE multiple of 41x on FY24E EPS of ₹ 18.1/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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27 May

Aim to double the number of direct outlets in 1 year – Tata Consumer Products

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,338 (+0.2%). Among the sectoral indices, PSU Bank (+2.9%), Bank (+1.2%), and IT (+1.1%) closed higher. Realty (-1.2%), Pharma (-0.2%), and FMCG (-0.01%) closed in the red. Shree Cement (+4.1%), SBIN (+3.1%), and Bajaj Auto (+2.2%) were the top gainers. HDFC (-2.7%), ONGC (-1.5%), and IOC (-1.4%) were among the top losers.

Excerpts of an interview of Mr. Sunil D’souza, MD & CEO, Tata Consumer Products with CNBC-TV18 dated 27th May 2021:

  • Speaking about ROCE, Mr. Sunil D’souza said the aim is to achieve double-digit ROCE by end of FY22E.
  • On tea prices, he said the drought-like conditions have kept the prices up. The tea prices are up ~60% YoY. The estimates suggest the prices will start coming down in 30-60days.
  • The company will resort to gradual price hikes if tea prices do not correct. The aim will be to achieve a 33-35% EBITDA margin on Indian beverages by 2nd half of FY22E.
  • On logistical issues, he said the base tea and salt businesses are growth levers for the company. The Sampann and Soulfull brands are growing in the pantry space. The plan is to increase overall distribution. The target is to double the number of direct outlets in 1 year. The company will achieve 1mn outlets by Sept-Oct 21.
  • On Starbucks, he said it witnessed a 14% revenue growth in Q4FY21 despite operations with 50% seating.
  • Take away and delivery compensated for the affected dine-in capacity.
  • The competitors are under pressure which will benefit Starbucks. The company has added 40 additional stores in FY21 despite the pandemic. There is an expansion in cities and different formats.
  • Speaking about ad spends, he said currently it is ~6% of sales but it will increase to double-digit in the short to medium term. In the FMCG space advertising is important to build brand equity.
  • On the rural segment, he said the 2nd wave has impacted the rural segment as well. For the company it is acting as an opportunity as the share of rural for the company was smaller as compared to competitors. The target is to increase rural distribution to ~9,000 distributors from the current 2,000 distributors in FY22E.

 

Asset Multiplier comments:

  • We believe rising tea prices and increased spends in advertising might put pressure on EBITDA margins in the near term.
  • An increase in the number of direct dealers might lead to better product availability and visibility. It will also help to manage the competition.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Consumer Products Ltd was ₹ 650 as of 27-May 2021.  It traded at 53x/44x the consensus Earnings per share estimate of ₹ 12.1/14.7 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 675/- which implies a PE multiple of 15x on FY23E EPS of 14.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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04 Feb

Entry into new categories with Soulfull acquisition – Tata consumer

Update on the Indian Equity Market:

On Thursday Nifty closed 0.7% higher at 14,896. Among the sectoral indices, PSU Banks (+5.9%), FMCG (+2.5%), and Metal (+2.0%) closed higher. IT (-0.4%) was the only sector which closed in the red. SBI (+6.6%), ITC (+6.1%), and Bajaj Finance (+5.0%) closed on a positive note. Asian Paints (-1.9%), UPL (-1.7%), and Cipla (-1.6%) were among the top losers.

Excerpts from an interview of Mr. Sunil D’souza, MD & CEO, Tata Consumer with CNBC-TV18 dated 03rd February 2021:

  • Tea prices have not started to taper off and the company is confident that proper execution will deliver good results in the future.
  • Starbucks and NourishCo Beverages are showing sequential improvement.
  • On ‘Soulfull’ acquisition, he said the Company looked at strategic and financial filters. It will help to get into new categories including snacking, breakfast.
  • This will lead to entry into new consumer occasions. The company was not previously present in these segments.
  • These new products are margin accretive products. EBITDA margins for Soulful are higher as compare to the current basket.
  • Speaking about the tea business, he said the margins are a transient issue. The company has increased its share by 90 bps (Y-0-Y).
  • The company has also integrated its distributor and digitize its system.
  • The account receivables days are down 50% from where the company started.
  • On future acquisitions, he said the company is juggling around different pieces and the announcement will be made when the company gets closer to it.
  • The gross cash of the company is around Rs 2,500 crores, the company makes judicious of the cash. The company around Rs 156 crore cash for the ‘Soulfull’ acquisition.
  • The company expects double-digit growth across financials.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Consumer was ₹ 589 as of 04-February-2021.  It traded at 58x/47x/40x the consensus Earnings per share estimate of ₹ 10.2/12.5/14.7 for FY21E/FY22E/ FY23E respectively.
  • The consensus average target price is ₹ 605/- which implies a PE multiple of 41x on FY23E EPS of 14.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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