Tata Consumer Products - A manageable (margin) speed-breaker in 'show me story' - ICICI Securities

While TCPL's headline 4Q margins likely disappointed consensus, it maintained market share gain trajectory with 190bps share gain in tea and 160bps in salt. While the steep inflation in input prices is likely to hurt gross margins in short term, we believe the market share gains are DCF accretive. Benefits of distribution integration / expansion will continue to be visible even in FY22. Focus on premiumization and differentiation will potentially continue to improve realizations as well as boost margins. Furthermore, we believe that strategic acquisitions (like Soulfull) are an important pivot for TCPL's value creation story. Despite the headwinds, Starbucks added 39 new stores in FY21 and turned EBITDA positive. Retain BUY with SoTP based target price of Rs770.

- Q4FY21 results: TCPL reported revenue growth of 26.3%, YoY. However, EBITDA and PAT declined 2.6% and 35.6%, respectively, YoY. Constant currency growth was 24%. Segment-wise revenue growth rates: India Beverages 59.6%, India Foods 22.4% and International Beverages 0.1%. India Beverages and Foods reported volume growth of 23% and 21%, respectively. Foodservice (International) reported volume decline of 18% YoY. Gross margin declined 623bps due to higher RM prices but EBITDA margin declined 294bps due to cost saving initiatives and operating leverage. Standalone revenues were up 38.5%, however, PAT declined 14.4% YoY.

- Benefits of distribution expansion on track: The numeric distribution of Tata Tea and salt has increased 15% and 11%, respectively in FY21. The revenue contribution of e-commerce channel increased to 5.2% in FY21 from 2.5% in FY20. Significantly, it reduced investments in working capital and Foods business reported negative working capital at end of FY21 (an important value-driver in DCF).

- Steady market share gains likely to continue: TCPL has gained 190bps market shares in tea and 160bps in salt in Q4FY21 vs Q4FY20. We model the company to continue to gain market shares due to (1) distribution expansion with higher focus on expansion of direct distribution, (2) steady launches of new variants with focus on premiumization and (3) value migration from unorganized/smaller brands.

- Starbucks is EBITDA positive now: Starbucks added 39 new stores in FY21 taking the tally to 221 stores. 94% of stores were open at end of Mar'21. The revenues in Mar'21 were 180% of Mar'20 revenues but revenues for FY21 declined 33%. The business was EBITDA positive in FY21. It has achieved (largely structural) cost savings in FY21, in our view.

- Reiterate BUY: We model TCPL to report revenue and PAT CAGR of 12.6% and 26.9%, respectively over FY21-23E. We maintain BUY and value the stock on SoTP basis with target price of Rs770. 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.629 as compared to the previous close of Rs. 653.4. The total number of shares traded during the day was 1037484 in over 44590 trades.

The stock hit an intraday high of Rs. 641.9 and intraday low of 614.25. The net turnover during the day was Rs. 648021081.

Source : Equity Bulls

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