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The show ('show me story') continues with minor breaks (in profitability)

While TCPL had not-so-easy macros to tackle (including (abnormally) high input inflation) in India and higher base in International (pantry up-stocking in Q1FY21), it continued to gain market shares. It gained 170bps market shares in India Tea and 370bps in Salt. It also gained shares in regular and specialty tea in Canada. While near-term impact of steep inflation in input prices is unavoidable, we highlight that market share gains are DCF-accretive.

We model it to gain market shares in FY21-23 due to (1) expansion of direct coverage and strengthening of rural distribution, (2) differentiated launches and (3) premiumization (premium salt grew 34% in Q1FY22). TCPL has largely completed integration of Soulfull with expansion of GT outlet reach by 3x. Quick integration is comforting and provides significant confidence about new bolt-on acquisitions (if any). Starbucks also reported V-shaped recovery in revenues immediately after lifting of lockdown. Maintain BUY with SoTP-based target price of Rs890.

* Q1FY22 results: TCPL reported revenue growth of 10.9%, YoY. However, EBITDA and PAT declined 17.2% and 39.3%, respectively, YoY. Constant currency growth was 10%. Segment-wise revenue growth rates: India Beverages 28.2%, India Foods 19.6% and International Beverages -12.7%. India Beverages and Foods reported volume growth of 3% and 17%, respectively. Gross and EBITDA margins declined 395bps and 451bps, respectively due to higher RM prices. Standalone revenues were up 22.5% but EBITDA declined 15.9% YoY.

* Market share gains in key segments: TCPL has significantly increased the investments in brand building with increase in ad-spend by 53% YoY. Due to higher investments in branding, launches of differentiated products and strengthening of distribution, TCPL gained 170bps market shares in India Tea and 370bps in Salt.

* On track to expand reach: It’s direct coverage has reached 0.8mn outlets in Jun’21 vs 0.5mn in Sept’20 and is on track to reach 1.0mn outlets by Sept’21. It has 3,000+ rural distributors now. E-commerce and Institutional revenues were up 153% and 144%, respectively YoY. Direct billing of urban outlets increased 12% in Jun’21 over Mar’21.

* V-shaped recovery in Starbucks in June’21: Starbucks has 219 stores in 18 cities now. It reported revenue growth of 371% YoY (2-Year CAGR: -21.9%). Apr-May’21 were impacted by lockdown but there is strong revival in revenues in June’21. While dine-in is still impacted, delivery contribution increased to 27% of revenues. 84% of Starbucks stores have opened at end of June’21.

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