Buy Tata Consumer Products; target of Rs 685: Sharekhan

Sharekhan's research report on Tata Consumer Products

Tata Consumer Products Ltd (TCPL) Q3FY2021 was a mixed bag, as revenues grew by ~23%, but gross margins declined by 574 bps, synergistic benefits and efficiencies resulted in just a 99 bps decline in OPM to 11.8%. India beverages business grew by 46%; India foods revenues rose by 19%, US Coffee by 11% and International tea by 14%. Acquisition of Soulfull will add value to India foods business with ‘better for you’ products. Out-of-home businesses NourishCo and Tata Starbucks have seen substantial improvement and will add-on to growth in the coming quarters.

Outlook

We have fine-tuned earnings estimates for FY21/22/23 to factor in higher-than-expected revenue growth and lower OPM. We maintain a Buy with unchanged PT of Rs. 685.