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Operating performance in line with our estimates

* Tata Consumer Products (TATACONS) reported revenue growth of ~12.5% YoY, driven by strong growth in India food business (up 24% YoY) and NourishCo (up 60% YoY). Operating performance in 1QFY24 was led by healthy performance from India branded business (EBIT up 20% YoY).

* We maintain our FY24/FY25 EPS estimates and retain our BUY rating on the stock with our SoTP-based TP of INR985.

India food business drives sales growth

* TATACONS reported revenue of INR37.4b (est. of INR36.8b) in 1QFY24, up 12.5% YoY. EBITDA margin improved 80bp YoY to 14.6% (est. of 14.5%), primarily driven by a reduction in employee and other expenses (incl. A&SP) as a percentage of sales by a 130bp (combined). However, this was partially offset by lower gross margins, which stood at 42.2% (vs. 42.6% in 1QFY23). EBITDA was up 19% YoY at INR5.5b (est. of INR5.4b).

* The Indian branded business grew 16% YoY to INR24.8b. EBIT grew 20% YoY to INR3.3b. International branded beverages revenue grew 7% YoY to INR8.9b, with EBIT growing 11% YoY to INR1.2b.

* Volumes in India Beverages/Foods grew 3%/6% YoY in 1QFY24. TATACONS maintained its strong growth trajectory in Salt, with a revenue growth of 18% YoY in 1QFY24. The Tata Sampann portfolio grew 51% in 1QFY24, aided by strong traction in dry fruits (doubled on a YoY basis).

* NourishCo witnessed robust revenue growth of ~60% YoY to INR2.9b in 1QFY24, despite facing adverse weather conditions and an elevated base from the previous year. This significant growth was primarily driven by 61%/71% growth in Tata Gluco/Tata Copper+ during the same period.

* Tata Starbucks revenue grew 21% YoY in 1QFY24. The business remained EBIT positive despite strong store additions during the quarter. It added 16 new net stores in 1QFY23, taking the total count to ~348 stores across 46 cities.

Highlights from the management commentary

* NourishCo: The management is targeting a revenue of ~INR10b from NourishCo in FY24; expected to be driven by expansion in distribution network and product portfolio.

* TATA Soulfull has doubled its revenue in FY23 and has registered ~50-55% growth in 1QFY24. It has a market share of mid-to-high single digit in the cereals category and strong double-digit share in masala oats category.

* Tata Sampann continued its strong performance with 51% YoY growth. It continued the innovation momentum with recent launches, such as South Hing (specially customized for south market), Rava Idli/Dosa and Daliya.

* Looking ahead, the management has guided for expansion in depth (over 1m split routes) as well as width (~20,000 trade accounts) of distribution network.

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