Buy Tata Consumer Products; target of Rs 1110: Motilal Oswal

Motilal Oswal's research report on Tata Consumer Products

Tea production for the current season (Feb-Oct’23) declined 1% YoY to 1,133m kg vs. 1,366m kg in CY22. During the current season, production in North India (contributes to ~84% of total tea production in India) was down 2% YoY at 948m kg due to a 3%/2% YoY decline in Assam/West Bengal (contributes to ~52%/30% of total tea production). However, production in South India was up 3% YoY at 185m kg. All-India tea production during the first flush (Feb-Jun’23) declined 1% YoY, dragged down by an 11%/4% YoY decline in Apr’23/Jun’23 but was partially pulled up by 16% YoY growth in Mar’23. (First flush produces best-quality output of entire tea season; it contributed to ~33% of the whole tea cycle volume in CY22.) During the second flush (Jul-Sep’23), all-India tea production declined ~6% YoY, due to a 17%/4% decline in Sep’23/Aug’23. Jul’23 production rose 6% YoY. The production decline was mainly attributed to unfavorable climatic conditions, especially scanty rainfalls in Assam and West Bengal. As per IMD, Assam/West Bengal received 19%/22% lower than normal rainfall during the monsoon season 2023 (Jun-Sep’23). All-India tea production in CY23 is expected to be muted YoY, owing to belowaverage rainfall in major tea producing states such as Assam, West Bengal, Kerala and Karnataka.

Outlook

We expect a revenue/EBITDA/PAT CAGR of 10%/15%/22% over FY23-26 and arrive at our SoTP-based TP of INR1,110. We reiterate our BUY rating.