Buy Tata Consumer Products; target of Rs 525: ICICI Direct

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ICICI Direct's research report on Tata Consumer Products

Tata Consumer Product (TCPL) reported a strong set of numbers with 13.4% revenue growth led by 18.9% growth in acquired food business (Tata Salt & Tata Sampann), 15% growth in international beverages (Tetley & EOC) & 11% growth in India beverages (Tata Tea & Grand). We believe the entire product portfolio has benefited from increased in-home consumption across countries. The highlight of the quarter has been (1) market share gains in India tea business with 8% sales growth whereas category saw 5.4% decline (2) robust 50% sales growth in pulses & spices, (3) market share gains in EOC (US coffee) with 26% sales growth. We believe the strong growth throughout quarter has been a result of consumption shift from unbranded to branded in tea, pulses & spices & better availability of the company’s brand at e-com channel (specific EOC in US). Operating margins expanded 312 bps with gross margin expansion of 176 bps & saving in marketing, employee & overhead spends to the tune of 56 bps, 50 bps & 30 bps respectively. Adjusted PAT increased 42.4% to Rs 282.2 crore.

Outlook

With merger of food business, the product portfolio has presence of high growing categories like pulses & spice. We believe the growth prospects largely depend on converting loose or semi branded consumption to branded given tea, pulses, spices have a very large unorganised market. We also see margins expansion possibility in the long run with low raw material price volatility (current times are exception). We remain positive on the stock & maintain BUY rating with a revised target price of Rs 525/share.

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