Here's Why Citi Initiated Coverage On Tata Consumer With 'Buy'
Tata Consumer likely splitting sales routes in large towns, expanding to semi-urban, rural markets to drive next phase of growth.
Tata Consumer Products Ltd. was rated 'buy' by Citi, citing its strong position in global markets, 13% annualised growth over the last three years, and improved operational efficiencies.
The company has been transforming into a "complete food and beverage player" since 2020, particularly after integrating its salt and foods segment, Citi said in a June 23 note.
A possible splitting of sales routes in large towns and the expansion of business into semi-urban and rural markets will be key factors in driving the next phase of growth for the company, it said.
Formerly known as Tata Global Beverages Ltd., Tata Consumer Products was formed when Tata Chemicals' consumer products business merged with Tata Global Beverages in 2020. Following the merger, the company controls brands like Tata Salt, Tata Tea, Tetley, and Starbucks.
The company now has more than 60% of its branded revenue coming from India, according to its latest annual report.
The company's merger with Tata Coffee, in which Tata Consumer currently holds a 57.48% stake, and the improvement of tax structures via the rationalisation of international entities will simplify and create focused business verticals, Citi said.
The stock has been among the top three movers on the Nifty FMCG over the last three years, and its shares hit a lifetime high of Rs 877.20 apiece on June 21.
Citi On Tata Consumer Products
Initiates a 'buy' rating with a price target of Rs 1,020 apiece.
The company's position in core segments continues to strengthen via the use of hyperlocal strategies to gain market share for local brands.
expects the company's estimated consolidated revenue to grow at a 12% CAGR from fiscal 2023 to fiscal 2026, driven by 9% growth in core Indian business and 42% growth in new Indian categories.
Strong likelihood of the Starbucks brand penetrating tier-2 towns in India, through innovative beverages and food menu, and smaller ‘Picco’ size hot beverages.
The international business, under pressure in recent quarters due to inflationary headwinds, is likely to recover with focus shifting to the fast-growing non-black tea segment.
Key risks include a delay in the recovery of the global macro environment due to the El Niño situation and limited domestic growth of the consumer base for new products.
Shares of Tata Consumer Products fell 0.64% to Rs 857 apiece, compared with a 0.49% gains in the benchmark Nifty 50 as of 2:25 p.m.
Of the 25 analysts tracking the company, 21 maintain a 'buy' rating, three recommends a 'hold', while one suggests a 'sell', according to Bloomberg data.
