Buy Tata Consumer Products; target of Rs 964: KR Choksey

KR Choksey's research report on Tata Consumer Products

TATACONS reported revenue of INR 34,746 mn (+8.3% YoY/ +3.3%QoQ). For 9MFY23,revenue was INR 1,01,644 mn (+ 9.9% YoY). EBITDA declined by 1.7% YoY but improved by 4.6% QoQ to INR 4,537 mn. EBITDA margin contracted by 133 bps YoY but expanded by 16 bps QoQ to 13.1%. For 9MFY23, EBITDA was at INR 13,448 mn (+5.5% YoY) while EBITDA margin was 13.2% (-55 bps YoY). Reported PAT for the quarter was INR 3,518 mn (+32.7% YoY/ +7.3% QoQ). For 9MFY23, reported PAT was INR 9,352 mn (+30.2% YoY). Q3FY23 had an exceptional item mainly related to fair valuation arising out of acquiring control of an overseas venture. Q2FY23 and Q3FY22 also had some exceptional items. Adjusted PAT for Q3FY23 was INR 2,732 mn (-1.8% YoY/ +26.0% QoQ). Adjusted PAT for 9MFY23was INR 7,694 mn (+2.4% YoY).

Outlook

We have valued TATACONS on a SOTP basis. For India Business, we apply an EV/EBITDA multiple of 35.0x to FY25E EBITDA; for International Business, we apply an EV/EBITDA multiple of 14.8x to FY25E EBITDA; and for Starbucks business, we apply an EV/Revenue multiple of 2.8x to FY25E Revenue. Accordingly, we maintain our target price of INR 964 per share (unchanged), an upside of 33.2% over the CMP. Accordingly, we reiterate a “BUY” rating on the shares of Tata Consumer Products Ltd.