Tata Consumer Stock Gains On Bullish Analyst Ratings

Shares of Tata Consumer Products Ltd. gained for the second time in last nine trades as analysts cheered its new acquisition and remained bullish on business prospects.

The maker of namesake tea and salt reported a 23% year-on-year rise in revenue at Rs 3,069.6 crore in the quarter ended December, according to an exchange filing. That compares with the Rs 2,836-crore consensus estimate of analysts tracked by Bloomberg.

That was led by a 43% value growth (volume plus price-led expansion) and 10% volume growth in the packaged beverage business during the reported quarter, the filing said.

Its India foods business also saw 19% value growth and 12% volume growth over the year earlier. Tata Salt saw double-digit volume growth, while international business was steady. Tata Starbucks saw sequential growth of 92% as more stores opened up.

• Tata Consumer's net profit rose 25% year-on-year to Rs 237 crore during the period, against the Rs 227.1-crore forecast.
• Ebitda rose 14% to Rs 361.3 crore, compared with the estimated Rs 393.6 crore.
• Margin contracted to 11.8% from 12.7%. Analysts had pegged the margin at 13.9%.

New Acquisition

Tata Consumer agreed to buy 100% of the total equity in ready-to-eat food products maker Kottaram Agro Foods — the promoter of the ‘Soulfull' brand — for Rs 155.8 crore.

“The said acquisition is in line with the company's strategic intent of entering into new adjacent categories in the food space,” the filing said.

After the acquisition, Tata Consumer will add healthy breakfast cereals and millet-based snacks in its portfolio. The brand has strong presence in select urban markets in south, west and north India.

The deal is expected to be completed by the end of the ongoing quarter.

Shares of Tata Consumer rose as much as 4% around noon to Rs 598 apiece. Of the 16 analysts tracking the company, 14 have a ‘buy' rating, while two recommend a ‘sell'. The average of Bloomberg consensus 12-month price targets implies an upside of 5.3%.

Here's what some analysts said...

Credit Suisse

• Maintains ‘outperform' rating; raises price target to Rs 635 apiece from Rs 555.
• Gained market share in beverage and foods business.
• India business faced gross margin pressure due to high tea prices, which have corrected since then.
• Expects sequential recovery in margin with full recovery after the flush season in April 2021.
• Raises FY21-23 earnings estimates by 2-3%.

Morgan Stanley

• Maintains ‘underweight' rating with a price target of Rs 494 apiece.
• Margins were a miss owing to tea price inflation.
• Management cautioned against margin pressure until Q1 FY22 in view of domestic tea inflation.
• Innovation, market share gains and premiumisation across segments.
• Integration of foods business is progressing well.
• Valuation discount versus peers appears to have narrowed sharply.
• Market pricing in positives at current levels.

Motilal Oswal

• Maintains ‘buy' rating; hikes price target to Rs 661 apiece from Rs 623.
• Performance impacted due to higher tea prices.
• Tata Sampann should grow in high double-digits.
• Expects sales, Ebitda, PAT CAGR of 12%, 20% and 25%, respectively, over FY20-23.
• Cuts FY21 Ebitda estimates by 6% but maintains FY22 and FY23 estimates.