Buy Tata Consumer Products Ltd For Target Rs.910 - ICICI Direct
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Margin trajectory to move upwards...
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 is in a JV with Starbucks, which has 233 stores in India.
* The company has 1500 distribution directly reaching to 1.1 million outlets in India. This will be increased to 1.3 million outlets by March 2022
* TCPL is also increasing its rural presence by increasing rural distributors to 5000 by March 2022
Q2FY22 Results: TCPL posted healthy numbers with 9.1% revenue growth
* Sales were up 9.1% YoY (11% like to like) aided by foods business growth
* EBITDA was at | 413.3 crore, up 3.4% YoY, with margins at 13.6%
* Consequent PAT was at | 285.8 crore (up 4.6% YoY)
What should investors do? TCPL’s share price has moved up 5.6x in the last five years (from | 140 in October 2016 to | 789 in October 2021).
* We slightly change our numbers downwards on the back of slower growth in the India & International beverage business
* We continue to maintain our BUY rating on the stock
Target Price and Valuation: We value the stock at | 910 on ascribing 56x FY24 earnings multiple
Key triggers for future price performance:
* TCPL is likely to witness strong margin improvement with a dip in tea procurement prices
* Strong innovation & premiumisation strategy in salt, tea, Sampaan & Soulful in India market 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 also like Zydus Wellness in our FMCG coverage.
* It is growing at a steady pace in nascent categories with strong presence in health, nutrition space & margin expansion possibilities
* Trading at a significant discount to FMCG peers. BUY with a TP of | 2,800
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