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TCPL’s 4QFY23 was tad ahead of expectations with some evidence of improving trajectory in the India business, though international profitability still needs some monitoring. Operating performance for 4Q was 1.5-2% ahead of forecasts helped mainly by India; International tea growth was propped up a tad by stake-consolidation of Joekels (South Africa) and Bangladesh. Gross margin was a negative surprise with steeper compression vs our forecast but Other Expenses including A&P grew just 1.6% and helped offset some of the impact. Geography-wise, India growth was led by continued strong performance in Foods along with some smart recovery in Tea volumes after declining 5% last quarter (key competitor HUL had grown c.5% during that period). International sales was a mixed bag, with US Coffee down 4% in CC terms due to continued volume pressure post a rather steep hike in selling prices, while International tea grew 4% CC, mostly volume-led. Post the recent correction in its valuation premium, the stock is now at a more reasonable zone, in our view (c.45x NTM EPS). Improved pay-out (c.65%) and strong cash reserves also augur well.

* Tad ahead of expectations - Foods continued to do well while International remained mostly weak: TCPL’s 4QFY23 consolidated revenue, EBITDA and adjusted net profit grew 14%, 15.2% and 18.1% to INR36.2bn, INR5.1bn and INR 2.7bn respectively. Sales, EBITDA were 1.5-2% ahead of our forecasts helped in part by stake-consolidation of Joekels (South Africa) and Bangladesh. Bottomline was overall c.3% below our estimates. Despite a higher-than-expected compression of 280bps in gross margin, EBITDA margin was maintained (+15bps to 14.1%) with the help of SG&A savings. Segmentally: 1) India Beverages grew 8.1% with Tea business back to growth (sales +1.6%, volumes +3%) after declining for three quarters. Nourishco remains on strong footing with sales +79% yoy. 2) Foods grew 25.7% though was significantly pricing-driven (volumes +8%). Salt revenue grew 24% & profitability is now back closer to normative range. Sampann portfolio had a strong 35% growth. Soulfull continues to benefit from distribution gains and innovations. 3) US Coffee fell 4% in CC terms (volumes -20%) while International Tea sales grew 4% CC on comparable basis with volume growth of 3%. 4) Starbucks grew 48% with annual revenue now above INR10bn threshold, and positive at EBIT-level

* Gross margin was a negative surprise, EBITDA impact cushioned by SG&A savings: Gross margin was weaker than we expected, on account of the continued impact of costsinflation, currency headwinds, and some lag-effect in pricing in International businesses. Standalone GPM (India Beverages and Foods) compressed 148bps, and international margin was still down >500bps resulting in consolidated gross margin compression of 280bps (vs our forecast of c.100bps). International margin has, however, fared better on sequential comparison helped by the flowthrough from price-hikes implemented across geographies. Steep compression in gross margin notwithstanding, consolidated EBITDA margin was more or less flattish yoy (India +140bps, International -170bps). While the company has discontinued disclosure of ad-spends, we suspect some rationalisation of the same to have helped overall ‘Other Expenses’ to grow at a significantly slower pace of 1.6% yoy (JMFe +7%) cf.14% growth in sales. Segmentally, India’s EBIT margin expanded 69bps yoy to 13.9% while International Beverages margin compressed 150bps (much improved vs -658bps in Dec-Q, though) to 12.9%

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