Buy Tata Consumer Products Ltd For Target Rs.1,040 By Motilal Oswal Financial Services
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International business drives operating performance
Operating performance in line
* Tata Consumer Products (TATACONS) reported ~11% YoY revenue growth, driven by a strong traction in India food business (up 16% YoY) and NourishCo (up 25% YoY). EBIT grew 22% YoY to INR4.4b in 2QFY24 led by a healthy performance of the International business (EBIT up 60% YoY due to pricing interventions and savings from restructuring).
* We retain our FY24/FY25 EPS estimates. Reiterate BUY with an SoTP-based TP of INR1,040.
India food business along with NourishCo drives sales
* TATACONS reported revenue of INR37.3b in 2QFY24 (est. INR37.4b), up 11% YoY. EBITDA margin improved 150bp YoY to 14.4% (est. 14.3%) due to 70bp lower other expenses (incl. A&SP) as a % of sales (combined) and higher gross margin at 42.5% (vs. 41.7% in 2QFY23). EBITDA jumped 24% YoY to INR5.4b (est. INR5.3b) during the quarter.
* The Indian branded business grew 11% YoY to INR24b, fueled by 8%/16% YoY revenue growth of Indian branded beverage/Indian food businesses to INR13.4b/INR10.7b. EBIT rose 7% YoY to INR3.3b during the quarter.
* Volumes in India Beverages/Foods grew 3%/6% YoY in 2QFY24. The salt segment’s revenue increased 8% YoY on a higher base of last year. The Tata Sampann portfolio jumped 47% YoY, aided by a robust volume growth and strong traction within dry fruits.
* NourishCo witnessed revenue growth of ~25% YoY to INR1.7b in 2QFY24, despite facing unfavorable weather conditions. Tata Starbucks’ revenue grew 14% YoY. The business remained profitable at EBIT-level despite a rapid expansion of its store network.
* International branded beverage revenue grew 13% YoY to INR9.5b, with EBIT growth of 60% YoY to INR958m fueled by pricing action, better performance within the UK business, and savings from restructuring.
* Adj. PAT stood at INR3.5b (est. INR3.4b), up 43% YoY. ? For 1HFY24, revenue/EBITDA/Adj. PAT grew by 12%/21%/29% to INR74.7b/ INR10.8b/INR6.7b.
Highlights from the management commentary
* Tea: TATACONS reported a blip in market share (down 95bp YoY) as tea prices declined. However, management expects to make up for the lost share going ahead, as tea prices have stabilized now.
* NourishCo remains on track to achieve INR10b of revenue in FY24. TATACONS launched its energy drink and sports drink at a low price point of ~INR10 in 2Q.
* Guidance: TATACONS will continue to focus on double-digit revenue growth and improved EBITDA margins, which will mainly be led by the growth businesses. The company is targeting mid-single-digit volume growth for its traditional business.
Valuation and view
* TATACONS is following a two-pronged growth approach: 1) focusing on new growth engines such as Tata Sampann, NourishCo, Tata Soulfull, and the readyto-eat/ready-to-consume business (Tata Smartfoodz); and 2) rapidly scaling up its distribution network along with digitization prowess across the supply chain, which will drive the next leg of growth.
* We expect a revenue/EBITDA/PAT CAGR of 10%/18%/28% over FY23-25. We retain our FY24/FY25E EPS. Reiterate BUY with an SoTP-based TP of INR1,040.
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SEBI Registration number is INH000000412
