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International beverage and non-branded business drive profitability

Operating performance in line

* Tata Consumer Products (TATACONS) reported a strong operating performance in 4QFY24. EBIT growth of 20% YoY was led by a healthy performance in the international branded beverage segment (EBIT up 29% YoY), and non-branded business (up 3.6x YoY). However, the EBIT of the India branded business grew by only 3% YoY.

* We broadly maintain our FY25/FY26 EPS estimates. Reiterate BUY with an SoTP-based TP of INR1,350.

Broad-based revenue growth; Capital Foods integrated in 4Q

* TATACONS reported an in-line revenue of INR39.3b, up 8.5% YoY in 4QFY24. EBITDA margin improved 190bp YoY to 16.0% (est. of 15.4%), fueled by a higher gross margin (up 430bp YoY) of 46.1% (vs. 41.8% in 4QFY23). EBITDA rose 23% YoY to INR6.3b (in line). Margin expansion was led by pricing interventions in most of its international markets.

* The Indian branded business grew 10% YoY to INR24.8b, led by revenue growth of 3%/20% YoY in Indian branded beverage business/Indian food business to INR13.2b/INR11.6b. EBIT increased 3% YoY to INR3.2b during the quarter.

* Volumes in India beverage business were flat on YoY basis, while volumes in the foods business grew 4% YoY (excluding Capital Foods) in 4QFY24. The salt segment’s revenue increased 5% YoY, led by ~3% YoY volume growth. The Tata Sampann portfolio grew 42% YoY.

* NourishCo’s revenue grew ~13% YoY to ~INR2b in 4Q, and was primarily hurt by the delayed onset of summer. Tata Starbucks’ revenue grew 7% YoY in 4QFY24.

* International branded beverage revenue grew 7% YoY to INR10.5b with EBIT growth of 29% YoY to INR1.6b, mainly driven by moderating input costs and pricing. Non-branded business revenue increased 7% YoY to INR4b, while EBIT jumped 3.6x YoY to INR919m due to higher coffee prices.

* Adjusted PAT stood at INR3.8b (in line), up 38% YoY in 4QFY24. ? For FY24, the company’s revenue/EBITDA/Adj. PAT grew 10%/23%/29% to INR152b/INR22.8b/INR14b.

Highlights from the management commentary

* Guidance: The management aims to increase the contribution of growth business from 18% in FY24 to 30% of its Indian business, with a 30% revenue CAGR. It targets 30% YoY growth in NourishCo in FY25. The short-term tea business volume growth is expected at 2-4%, while mid-single-digit growth is anticipated in the medium to long term. Margin improvement is expected in the international beverage business going forward.

* Acquired businesses: Capital Foods and Organic India are expected to be cash EPS accretive from FY25 and accounting EPS accretive from FY26.

* Salt: In line with the company's premiumization agenda, value-added salts grew 34% in FY24 and accounted for 9% of the India salts business. The salt business touched its highest-ever market share of 39.9% in Feb/Mar'24.

Valuation and view

* TATACONS's holistic strategy is aimed at: i) strengthening and accelerating its core business, ii) exploring new opportunities, iii) unlocking synergies, iv) digitizing the supply chain, v) expanding its product portfolio and innovation, vi) enhancing its focus on premiumization and health & wellness products, vii) embedding sustainability, and viii) expanding its sales and distribution infrastructure, supply chain, and capability building toward being a multicategory FMCG player.

* We expect TATACONS to clock a revenue/EBITDA/PAT CAGR of 13%/17%/19% during FY24-26. We broadly maintain our FY25/FY26 EPS estimates. Reiterate BUY with an SoTP-based TP of INR1,350.

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