Buy Tata Consumer Products for target price of Rs 950 (25% gain): ICICI Direct

Maintain our positive stance on growth…

About the stock: Tata Consumer Products (TCPL) is one of the major FMCG companies present in tea, coffee & other beverages in India, UK, US, Canada and some other geographies. In India, it also has salt, pulses, spices and other food products. Its subsidiary NourishCo is present in packaged water & other beverages. The company is in JV with Starbucks, which has 300 stores in India.

► The company has 2000+ distribution directly reaching to 1.4 million outlets in India. This will be increased to 1.5 million outlets by March 2023

► TCPL also increased its rural/ semi urban distributors 4x to 8000+ after the consolidation of the consumer business

Q2FY23 Results: TCPL reported 10.9% pricing led sales growth

► Sales were up 10.9% YoY backed by 29% growth in foods business

► EBITDA was at Rs 433.8 crore, up 5% YoY, with margins at 12.9%

► Consequent adjusted PAT was at Rs 307.5 crore (up 3.2% YoY) What should investors do? TCPL’s share price has moved up 3.5x in the last five years (from Rs 220 in October 2017 to 761 in October 2022)

► We continue to remain positive on TCPL’s strategy of driving premium trend in foods business and foray in large opportunity size categories

► We maintain our BUY rating on the stock

Target Price and Valuation: We value the stock at Rs 950 on ascribing 55x FY24 earnings multiple.

Key triggers for future price performance:

► The company is leveraging the Tata brand by foraying in ready to eat (RTE), snacks, water, ready to drink (RTD) & multiple other staple categories, where the opportunity to convert unorganised/ local brand consumption to strong organised brand is immense

► Strong innovation & premiumisation strategy in salt, tea, Sampann and Soulful in the India market is expected to drive margins. Newer categories like pulses, spices, dry fruits & healthier mini meals to drive volume growth

► Starbucks is witnessing robust store addition along with improvement in operating profits. Likely to drive profitability in future

Alternate Stock Idea: We also like Dabur in our FMCG coverage.

► Shift in consumption towards healthier, natural & Ayurveda based products & aggressive foray in many big categories would drive growth

► Value the business at 55x FY24 earnings. BUY with a TP of Rs 700