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Systematix Research Report
Tata Consumer Products Ltd.'s Q3 FY24 result was marginally better than our expectations, with revenue/Ebitda/profit after tax growth at 9.5%/26.2%/37.5% respectively.
Gross margin grew 228bps to 43.8% while Ebitda margin expanded 199 bps to 15% helped by pricing interventions in international markets, softening of commodity costs and better operating cost controls. Tea grew 2% in volumes and 4% in value, foods grew 13% in value and 5% in volume, U.S. coffee declined 6% in value with 1% fall in volumes while international tea grew 22% in value and 10% in volumes.
Tea business has benefitted from recent price cuts and distribution efforts and should stabilize at mid single-digit volume growth. Salt business should continue with mid single-digit volume and double-digit value growth, led by premiumisation and market share gains (39% exit share), with margins normalizing.
Sampann should remain the key growth engine (should cross Rs 9 billion revenue in FY24), with multiple innovation and distribution initiatives in the pipeline across multiple categories. Nourishco (target to reach Rs 9-10 billion revenue in FY24) and Starbucks should continue their strong growth trajectories, with ramp up in new launches and aggressive distribution and store expansion, respectively.
Tata Consumer Products' international business could continue to deliver soft volumes, while margins have been moving up post recent price hikes and structural interventions. We view the acquisitions of Capital Foods and Organic India as strong additions to Tata Consumer Products' food and beverage portfolio with significant scope for scale-up and margin improvement.
We build in revenue/Ebitda/PAT compound annual growth rate of 11.2%/16.5%/24.5% over FY23-26E. Tata Consumer Products' now deserves a multiple higher than peers given the long-term visibility of doubledigit growth and margin improvement potential, but a lot of the positives are already in the price in our view with limited upside in the near term.
We therefore, maintain our 'Hold' rating with a target price of Rs 1,270 based on 60 times FY26E earnings and advise accumulating the stock on any corrections hereon.
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