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Long-term thesis intact

TCPL is a stand-out performer in Consumer Staples. It is gaining market shares (in India Tea) and expanding margins. Yes, the impact of steep inflation in tea was much prior to palm oil and crude oil inflation. In 3QFY22, it reported strong EBITDA and PAT growth of 27.8% and 36.3% YoY (2-yr CAGR of 20.5%, 49.6%).

It is reaping the benefits of expansion and restructuring of distribution network with market share gains of India Tea (160bps) and Salt (407bps). It sold highest ever volumes of salt in Dec’21 even after raising price to Rs24/Kg from Rs21/Kg YoY. We highlight it has continued to introduce differentiated products such as Tata Salt Superlite (premium salt) and Shuddh by Tata Salt (value-for-money). We model TCPL to gain market shares across segments in FY22-24E with (1) portfolio premiumization, (2) commencement of second leg of distribution expansion and (3) increase in brand building investments. Starbucks was near PAT positive in Q3FY22. Maintain BUY with a revised SoTP-based target price of Rs925.

Q3FY22 results: TCPL reported revenue, EBITDA and PAT growth of 4.5%, 27.8% and 36.3% YoY, respectively. Constant currency growth was 4%. Segment-wise YoY revenue growth rates: India Beverages 0.2%, India Foods 16.1% and International Beverages -3.2%. India Beverages and Foods reported volume growth of 6% and 4%, respectively. Gross margin was up 590bps and EBITDA margin was up 262bps due to higher ad-spend and other expenditure. Standalone revenues, EBITDA and PAT were up 3.5%, 42.4% and 38.2% YoY, respectively.

Market share expansion: With success of regionalization strategy in tea, distribution expansion of tea and salt, launch of differentiated variants and higher adspend, TCPL has continued to gain market shares in tea (160bps) as well as salt (407bps). We model the company to gain to market shares in coming quarters too.

Tata Salt volumes highest in Dec’21: While the company has exercised its pricing power to pass on input inflation and has hiked price to Rs24/kg from Rs21/Kg YoY, volumes have remained healthy and it reported highest volumes in Dec’21. TCPL has also introduced premium variant Tata SuperLite and Shuddh by Tata Salt in value-for-money segment

Sharp improvement in Tea profitability; coffee reporting healthy growth: India Beverages reported 6% volume growth and also gained 160bps market share in tea. With the impact of inflation behind, the EBIT margin expanded 1,100bps. We also note coffee business reported 65% volume growth.

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