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Volume growth, margin expansion on anvil…

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 foods products. Its subsidiary NourishCo is present in packaged water & other beverages. The company is in JV with Starbucks, which has 333 stores in India

               • The company has 2000+ distribution directly reaching to 1.5 million outlets in India. Its total distribution reach is 3.8 million outlets

Q4FY23 Results: TCPL reported 14% revenue growth led by the India business

• Constant currency sales growth of 12% was driven by 6% volume growth • EBITDA was at | 511.7 crore, up 15.2% YoY, with margins at 14.1%

• Consequent adjusted PAT was at | 289.5 crore (up 21.1% YoY)

What should investors do? TCPL’s share price has given moved up 155% in the last five years (from | 292 in April 2018 to | 744 in April 2023) • TCPL to drive volumes through new product portfolio, which includes NourishCo, Soulful, Sampaan & Smartfoodz. Premiumisation trend in tea & salt to aid margins • We maintain our BUY rating on the stock

Target Price and Valuation: We value the stock at | 980 on ascribing 52x FY25 earnings multiple.

Key triggers for future price performance:

* New product portfolio in RTE, RTC, water, nutritional foods & other categories with large opportunity size to drive volumes. The growth brands (Tata Sampann, NorurishCO, Tata Soulfull and Tata Smartfoodz) contribute 15% of India branded sales growing at 53% (in FY23)

* Strong innovation & premiumisation strategy in salt and tea is expected to drive margins in established brands. Further, softening of commodity prices along with requisite price hikes to also aid margins

* Starbucks crossed the sales of | 1000 crore with total 333 store in 41 cities. With the aggressive store addition & maturity of existing stores, operating profit to grow at a faster pace in the next three to five years

Alternate Stock Idea: We also like Dabur in our FMCG coverage.

* Shift in consumption towards healthier, natural & Ayurveda based products & aggressively foray in many big categories would drive growth • Value the business at 52x FY25 earnings. BUY with a TP of | 700

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