Tata Consumer Products: Maintain ‘buy’ with a revised TP of Rs 880

Tata Consumer Products (TCPL) is trading near its all-time high, having run up 32% since our initiation about five months ago. In this report, we are highlighting the takeaways from the company’s AGM, including the focus on expanding its online and offline distribution to drive the next leg of growth. Tea price correction, likely over the next two months, is a key variable. A potential YoY moderate correction in tea prices is likely, but prices are likely to be higher than the level two years ago. The new leadership has infused vigour in execution. And, on the whole, we remain quite positive on the stock over the medium to long term. Maintain ‘buy’ with a revised TP of Rs 880.

Top eight takeaways:
Portfolio: To strengthen its portfolio and remain aggressive on acquisitions. Eight O’Clock Coffee: Set for India launch DTC model (e-commerce) this week. Immunity health products: An area of focus; launches to follow. Distribution: TCPL will ensure availability despite the second wave. The company is taking steps to make products available everywhere and at all times. Non-core businesses: The company would continue to evaluate and exit them. Starbucks: Will continue to expand it aggressively—39 stores opened in FY21. E-commerce and synergies: TCPL plans to leverage the Tata super app to raise its e-commerce game. The Tata group has acquired a majority stake in online retailer BigBasket, which TCPL would leverage. Capex plan: Rs 3.5–4billion per year. Outlook and valuation: Favourable base widening; maintain ‘buy’ TCPL’s core businesses — salt and tea — should feed its steady revenue momentum while new businesses—pulses & spices—should provide the revenue fillip. The company has sharpened the focus on its key geographies and simplified its business model by exiting non-core markets and businesses. Progress on Sampann remains a key driver for long-term growth, although Q4FY21 disappointed. Integration of the Food & Beverage (F&B) business has widened the direct coverage of outlets by 30% while integration of the F&B CFA network has led to cost reductions. We retain ‘buy/so’ with a revised TP of Rs 880 (earlier Rs 770) while rolling forward the valuation to Dec-22E.
The stock is trading at 44.8x FY23E EPS.