Tata Consumer, 400% Mutibagger, is a buy now for 40% gain: Jefferies research report

Tata Consumer Products has been a multibagger with a 400% gain over the past five years. However, it has been flat over the past year due to the problems plaguing the stock market.



According to Jefferies, the leading foreign brokerage, the time is appropriate to buy the stock for a bull case target price of Rs 1,060 over the next 12 months which means a hefty gain of 40 per cent gain. Even the base case target price is Rs 960, which translates into a 28 per cent upside.

According to the ET, the logic advanced for the buy recommendation is as follows:

“Tata Group's consumer businesses' consolidation has transformed Tata Consumer into a strong food and beverages play. India business (70 per cent of revenue) has a diverse mix of leading brands and high-growth segments, while slow-growing international business has improved profitability. Unique portfolio offers better margin visibility, a key differentiator versus peers.”

It is stated that Tata Consumer's biggest strength is its salt and tea business. They form the bedrock of its India business and share similar traits, albeit with some differences. In salt, Tata Consumer leads the market with a 38 per cent share, and in packaged tea, it's a strong number 2 with a 22 per cent share.

“Both categories, while high on penetration, have room for growth through formalisation, share gain, premiumization and expansion of distribution. NSE 0.69 % also has a small presence in packaged coffee,” it was stated in the research report.

The company has a high growth portfolio comprising NourishCo (packaged water – Himalayan, Tata Water Plus), Sampann (spices and pulses), Soulful (breakfast), Tata Q (ready to eat) and Starbucks (coffee chain).

Besides generating 27 per cent of revenues, the international portfolio includes the global tea and coffee business, mainly in developed markets, with strong market shares in a handful of categories and geographies.

“We value the India business at 39x Jun-24E EV/Ebitda, largely in line with sector average and India accounts for 75 per cent of sum of the parts (SoTP) value. A sharp rise in input prices, consumption slowdown, and large-scale M&A are key risks to our positive view,” the recommendation states.

Key catalyst that may impact the company’s growth and stock:

Upside catalysts

• Moderation in input costs, especially in salt
• Recovery in consumer demand, led by rural
• Entry into newer categories, both through organic and inorganic means
• Improved performance in the international business
• Further initiatives to restructure operations and drive synergies

Downside catalysts

• Elevated input inflation
• Weak consumer demand, which slows volume growth in tea and salt
• Execution risk in new growth categories

“Tata Consumer is on a multi-year transformation journey, expanding from being a tea & salt company to a broader FMCG franchise. With initial building blocks in distribution and portfolio expansion in-place, we expect TCPL to deliver strong growth over the medium term. We are largely in line with consensus on our EPS estimates,” the ET stated, reproducing from the research report of Jefferies.