Buy Tata Consumer Products: target of Rs 630: Sharekhan

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Sharekhan's research repor on Tata Consumer Products

Q2FY2021 was a mixed bag, as revenues grew by ~19%, but gross margins declined by 269 bps, in turn limiting rise in OPM to 97 bps to 14.4%; operating profit grew 27%. The India beverages grew by 32%; India foods revenues rose 13%; Tata Coffee (including Vietnam) grew by 17%, while international tea business’ growth moderated to single digits as effect of pantry loading faded. Market share gains in domestic branded tea and salt, doubling of distribution reach, better penetration of packaged foods portfolio and new launches remain key growth levers in the near term. A significant increase in domestic tea prices will stress margins but merger synergies would ease the impact.

Outlook

We broadly maintain earnings estimates for FY2021/22/23E and retain a Buy on the stock with an unchanged PT of Rs. 630.

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