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

KR Choksey's research report on Tata Consumer Products

Despite the volatile macro environment and geopolitical unrest, Tata Consumer Products (TATACONS) delivered a well-rounded performance across key metrics with double-digit revenue growth and an EPS growth of 28% in FY23. The organized Indian food and beverage market is expected to grow at 10-15% over the next 5 years. In FY23, TATACONS progressed in strengthening the core businesses and expanding the total addressable market. TATACONS has narrowed the universe down to five key platforms—Current core (tea, coffee, salt), Pantry (pulses, spices, staples, RTCs, dry fruits), Liquids (water, RTD), Mini meals (breakfast cereals, RTEs, snacks), and Protein platform (plant-based meat, plant protein powder). TATACONS has continued to invest in the future growth engines of its portfolio, and this has started delivering results, with the growth businesses recording 53% YoY growth in FY23 and increasing their salience significantly. TATACONS has invested in building a ‘fit for future’ R&D capability and accelerated the pace of innovation, launching 2X the number of new products versus FY22 and entering several new categories. In September 2020, TATACONS committed to doubling its numeric reach to 4 mn outlets in three years and it is on track to achieve that. It now has a total reach of 3.8 mn outlets, with a direct reach of 1.5 mn outlets.

Outlook

We continue to value TATACONS on a SOTP basis. For India Business, we apply an EV/EBITDA multiple of 34x to FY25E EBITDA; for International Business, we apply an EV/EBITDA multiple of 15x to FY25E EBITDA; and for Starbucks business, we apply an EV/Revenue multiple of 2.9x to FY25E Revenue. Accordingly, we maintain our target price of INR 964 per share (unchanged), an upside of 22.1% over the CMP. Accordingly, we reiterate a “BUY” rating on the shares of Tata Consumer Products Ltd.

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