Tata Consumer Products - Parallels between growth journey: 'PARACHUTE' and 'TATA SALT' - ICICI Securities

There are brands. There are great brands. 'Parachute' (coconut oil brand of Marico), in our view, is one of them. It's a classic case of building (and sustaining) a brand and earnings brand margins in a (hitherto) commoditized category.

We believe that 'Tata Salt', a great brand (already), has the opportunity to build on awareness > availability and find similarities in it's journey vis-à-vis Parachute.

In this report, we present why we believe 'Tata Salt' could potentially reach >60% market share (vs. ~34% now) and be the significant value-driver for Tata Consumer stock. While some investors believe 'Tata Sampann' as the next big value-driver for TCPL stock, in our view, it's likely to be Tata Salt. BUY; TP Rs800.

- Parallels between Parachute and Tata Salt: Both the brands have multiple similarities, such as: 1) they have been created from commodities (coconut oil and salt); 2) both operate in large unorganised markets; 3) most MNCs and many large domestic players have failed to gain market share in these categories; 4) distribution is relatively tough considering lower revenue per gram and freight costs; and 5) both have 'right to premiumise' the portfolio compared to peers.

- Expect similar growth story for Tata Salt: TCPL is focusing on: 1) increasing direct reach to 1mn outlets by Sept'21 (30% achieved till Mar'21) and total reach has increased to 2.4mn outlets now from 2mn outlets in Mar'20; 2) driving growth of premium variants of Tata Salt, which will also reduce the linkage between commodity and brand and will likely drive (a) steady value market share gains; (b) improve realizations; and (c) expand margins. As Tata Salt enjoys highest EBIT margins among most business segments of TCPL, its revenue outperformance is a potential margin expansion tailwind, in our view.

- Analyzing the growth story of Parachute: Marico worked on four strategies, viz.: 1) aggressive investments in brand-building (13% adspend CAGR over FY02-FY20 (at a corporate-level); 2) investments in distribution expansion (~6% CAGR in retail outlets over FY07-FY20); 3) introduction of premium variants; and 4) reduction in linkage between commodity (copra) and brand (Parachute) prices. This led to ~800bps market share expansion and 7.1% volume CAGR for Parachute over FY10-FY21. Volumes in the company's hair oil segment (premium variants of Parachute and other brands) grew at a CAGR of 12% over FY10-FY21.

- Reiterate BUY: We model TCPL to report revenue and PAT CAGR of 12.6% and 25.5% respectively over FY21-FY23E. We maintain our BUY rating and value the stock on SoTP basis with a target price of Rs800. Key risk is in execution, i.e. delays in realising integration gains, ramp-up of distribution, etc.

Shares of Tata Consumer Products Limited was last trading in BSE at Rs.709.9 as compared to the previous close of Rs. 700. The total number of shares traded during the day was 272386 in over 9916 trades.

The stock hit an intraday high of Rs. 715.45 and intraday low of 701.5. The net turnover during the day was Rs. 193588568.

Source : Equity Bulls

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