Buy Tata Consumer Products; target of Rs 490: YES Securities

YES Securities is bullish on Tata Consumer Products has recommended buy rating on the stock with a target price of Rs 490 in its research report dated August 05, 2020.

Broker Research

August 08, 2020 / 13:29 IST

YES Securities' research report on Tata Consumer Products

Strong revenue/EBITDA/PAT growth of 13%/38%/42% respectively led by strong growth in India Foods and International Beverages. Despite the production and supply chain disruptions in April, superb on-ground execution helped further by pantry stocking led to 8% growth in India tea, 19% in India foods (11% in salt and >50% in pulses/spices), 15% in international beverages (13% in tea and 37% in EOC coffee) and 12% in Tata Coffee. Strong 310bps EBITDA margin improvement to 17.9% led by better realizations, lower trade spends, better product and channel mix, utilization of low priced RM inventory and lower discretionary expenditure across key cost heads. Management highlighted some tapering off in the demand momentum and also the margin risks on account of a 50% rise in India tea prices; integration between foods and beverages business should complete by end-CY20 with expected synergy benefits of 1.5%-2% over 18-24 months and a 100bps reduction in distribution costs post completion of supply chain initiatives. Results were a significant beat on our and consensus estimates with more than expected surge in demand due to pantry stocking across markets coupled with strong execution and lesser promotion and other spends.

Outlook

We retain our BUY rating despite the recent up move as we believe it is a solid medium to long term story with improving visibility of higher growth rates and better execution coupled with multiple margin levers driving higher return ratios. We increase our SOTP-based TP to Rs 490 from Rs 460 earlier given a 13% and 9% upgrade to our EPS estimates for FY21 and FY22 respectively, implying 44x P/E.

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