Buy Tata Consumer Products Ltd for the Target Rs 1,500 by Motilal Oswal Financial Services Ltd
Indian branded business drives earnings growth Operating performance in line with estimates
* Tata Consumer Products (TATACONS) reported ~27% YoY EBIT growth in 1QFY27, led by robust 36% YoY EBIT growth in the Indian branded business, followed by ~13% YoY growth in the International business. On the other hand, the non-branded business reported a ~25% decline in EBIT, primarily due to a sharp decline in global coffee prices.
* We expect TATACONS to maintain double-digit growth going forward, led by ~25-30% increase in the growth portfolio, mid-single-digit volume growth in the Indian tea business, and ~5-7% growth in the salt business. Further, International business (US) is expected to witness healthy performance, aided by the normalization of coffee prices.
* We largely maintain our FY27/FY28 earnings estimates and reiterate BUY with an SoTP-based TP of INR1,500.
Performance driven by traction in the branded and growth portfolios
* TCP reported revenue of INR53.5b (est. in-line), rising 12% YoY. EBITDA margin expanded by 80bp YoY to 13.5% in 1QFY27 (est. in line), led by a 260bp expansion in gross margin to 42.7% v/s 40.1% in 1QFY26. EBITDA grew 19% YoY to INR7.2b (est. in line)
* The Indian branded business grew 13% YoY to INR35.4b, with EBIT growing 36% YoY to INR3.9b.
* RTD segment (NourishCo) revenue rose ~41% YoY to ~INR3.8b, with volumes recording growth of 35%. Growth businesses (including RTD, Capital Foods, and Organic India) reported strong growth of 47% YoY, led by robust growth in Tata Sampann (up 58%). Organic India and Capital Foods grew 35% YoY on a combined basis.
* International branded beverages revenue grew 17% YoY to ~INR13.4b, with EBIT growing 13% YoY to INR1.8b. Non-branded business revenue declined 7% YoY to ~INR4.9b, while EBIT declined 24% YoY to INR491m.
Valuation and view
* We expect TATACONS’ growth momentum to strengthen further, driven by improving go-to-market (GTM) execution, rising e-commerce penetration, premium product launches, and the continued scale-up of high-growth businesses such as Tata Sampann, RTD Beverages, Capital Foods, and Organic India.
* The company expects operating margins to expand over the coming years, driven by portfolio premiumization, innovation-led product expansion, and an increasing contribution from higher-margin growth businesses and health & wellness categories.
* We expect TATACONS to clock a CAGR of 10%/16%/21% in revenue/EBITDA/PAT during FY26-28. Reiterate BUY with an SoTP-based TP of INR1,500.
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