Tata Consumer Products - The show (show me story) begins - ICICI Securities

Post the >100% outperformance (vs. Nifty) over the last two years, TCPL is now a "Show me vs Trust me" story (link). 2QFY21 was a significant consensus beat, particularly in India Tea. We believe that integration of distribution will continue to drive (1) market share gains and (2) lower costs. That's the insight (proof?) from TCPL's Q2FY21. Our positive stance is intact, and we move the rating a notch higher to BUY (from ADD). TCPL is on track to (1) double the direct reach to 1mn from 0.5mn outlets and (2) it plans to focus more on new products as distribution merger will be largely over by Q4FY21. We believe Tata Sampann and Himalayan can also emerge as value creators with rising consumer acceptance of Sampann and distribution integration with TCPL for Himalayan. There is faster-than-expected recovery in Starbucks with 86% stores open now. BUY with SoTP based target price of Rs640.

- Q2FY21 results: TCPL reported revenue, EBITDA and PAT growth of 18.5%, 26.9% and 42.3%, respectively. Constant currency growth was 16%. Segment-wise revenue growth rates: India Beverages 32%, India Foods 13.1% and International Beverages 7.3%. India Beverages and Foods reported volume growth of 11% and 6%, respectively. Normalization of demand with utilization of pantry stock by consumers impacted International Beverages. Gross margin declined 269bps due to higher input prices but EBITDA margin expanded 95bps due to cost saving initiatives. Standalone revenues and PAT were up 21.6% and 20.5%, respectively.

- Distribution merger on track; expect synergy benefits in H2FY21: The company has finished phase 2 (out of 3) of distribution merger. It plans to double the direct reach from 0.5mn outlets to 1mn outlets and also expects the synergy benefits to flow from Q3FY21 onwards. Distribution of Nourishco (Himalayan) is now integrated with TCPL. Focus on new products will increase as distribution merger will be largely over by Q4FY21. Recent launches such as poha and nutria-mixes are also doing well.

- Market share gains across categories in India: Branded Tea market grew 5.8% whereas TCPL's India Beverages reported 32% revenue growth. Salt has also gained market share and the value added salt variants reported 100% revenue growth YoY. Tata Sampann reported 35% revenue growth.

- 86% Starbucks stores open now: Starbucks added 11 new stores in Q2FY21 and 4 stores in Oct'20 taking the tally to 200 stores. The revenues in Sept'20 were 70% of Sept'19 revenues with strong MoM recovery. Now 86% of the stores are open and with opening up of economy, we model sharp recovery in H2FY21. The company has renegotiated rentals which will (structurally) improve profitability.

- Upgrade to BUY (from ADD): We model TCPL to report revenue and PAT CAGR of 14.2% and 29.2%, respectively over FY20-22E. We upgrade the stock to BUY and value the stock on SoTP basis with target price of Rs640 (earlier Rs600). Key risk is execution - delays in realising integration gains, ramp up of distribution etc.

Shares of Tata Consumer Products Limited was last trading in BSE at Rs.516.3 as compared to the previous close of Rs. 513.25. The total number of shares traded during the day was 57188 in over 3005 trades.

The stock hit an intraday high of Rs. 519 and intraday low of 515. The net turnover during the day was Rs. 29556024.

Source : Equity Bulls

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