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Buy Tata Consumer Products Ltd For Target Rs.900

Business growth momentum continues...

About the stock: Tata Consumer Products (TCPL) is one of the major FMCG companies present in tea, coffee & other beverages in India, UK, US, Canada and some other geographies. In India, it also has salt, pulses, spices & other food products. Its subsidiary NourishCo is present in packaged water & other beverages. The company has a JV with Starbucks, which has 219 stores in India.

* TCPL has 1500 distribution directly reaching to 0.82 million outlets in India while the reach would increase to 1.0 million outlets by September 2021.

* The company is also increasing its rural presence with 3x feet on street, 2000 rural distributors and 300 super stockist.

Q1FY22 Results: TCPL posted muted volume growth (3%) in India tea business.

* Sales were up 10.9% YoY dragged by international business

* EBITDA was at | 399.5 crore, down 17.2% YoY, with margins at 13.3%

* Consequent PAT was at | 208.1 crore (down 39.8% YoY)

What should investors do?

TCPL’s share price has moved up 5.5x in the last five years (from | 140 in August 2016 to | 759 in August 2021).

* We roll over FY24 numbers on expectations of continued growth momentum with health, ayurveda & natural consumption tailwinds

* We continue to maintain BUY rating on the stock

Target Price and Valuation: We value the stock at | 900 ascribing 55x FY24 earnings multiple.

Key triggers for future price performance:

* TCPL has taken staggered price hikes to pass on steep inflation in tea. This along with tea prices cooling off would help it to recoup margins

* Strong innovation & premiumisation strategy in salt & tea in India market is expected to drive sales & margins

* With the increase in mobility, Starbucks is expected to witness a swift recovery. Store expansion is expected to drive growth

Alternate Stock Idea: We like HUL in our FMCG coverage.

* With synergistic benefits of acquired nutrition business, strong premiumisation trend & strong distribution, HUL would continue to grow the revenues at a sustainable pace

* Value the business 55x FY24 earnings. BUY with TP of | 2,750

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