Tata Consumer Products' efforts are paying off; stock sees steady gains

Distribution expansion, focus on large categories, and forays into new segments key drivers of a strong performance

The Tata Consumer Products (TCPL) stock has witnessed steady gains over the past several months. This ties in with a general uptick in the FMCG sector. TCPL has undertaken several initiatives, such as improving distribution reach, increased focus on large categories like pulses, spices and dry fruits, entry into breakfast cereals, mini meals and snacking options, the merger of Tata Coffee with TCPL, and acquisitions in niche products.

Its domestic revenue grew 10 per cent year-on-year (YoY) in Q4. The salt business witnessed a 25 per cent increase with price hikes and volume growth; some growth businesses soared due to expansion in distribution reach. India beverage sales declined marginally. 
 

International business was up 5 per cent YoY (constant currency) on account of price increases. Non-branded sales grew 21 per cent, led by higher realisations in the coffee plantation and extraction business.
 

TCPL accelerated innovation with a focus on health & wellness, convenience, and premiumisation. The company launched 34 products in FY23 against 19 in FY22, and 14 in FY21, raising the innovation-to-sales ratio to 3.4 per cent in FY23 from 0.8 per cent in FY20. New categories included plant-based meat, protein supplements, and ready-to-eat (RTE) and ready-to-cook (RTC) products. The direct distribution network was augmented by 15 per cent to 1.5 million outlets (more than double vis-à-vis FY21) and has a total reach of 3.8 million outlets, with focus on enhancing semi-urban and rural. TCPL added 22 new stores in Q4FY23. In FY23, it entered 15 new cities and added 71 new stores.
 

Standalone revenue was Rs 3,620 crore in Q4FY23, up 14 per cent YoY. The Ebitda (earnings before interest, taxes, depreciation and amortisation) margin remained flat YoY at 14.1 per cent due to lower gross margins being offset by lower employee costs and other expenses. Ebitda increased 15 per cent YoY to Rs 510 crore. Its India branded business grew 15 per cent YoY to Rs 2,250 crore. Ebit grew 21 per cent YoY to Rs 310 crore. International branded beverages revenue grew 11 per cent YoY to Rs 980 crore, with Ebit marginally declining 1 per cent YoY to Rs 130 crore. Volume in India beverages and food grew 3 per cent and 8 per cent YoY, respectively, in Q4FY23.
 

The Tata Sampann portfolio grew 35 per cent and 29 per cent, respectively, in Q4FY23 and overall FY23, aided by a broad-based performance in staples and dry fruits. NourishCo’s revenue rose 79 per cent to Rs 180 crore in Q4 and stood at Rs 620 crore in FY23. Tata Starbucks grew 48 per cent and 71 per cent YoY in Q4 and FY23, driven by out-of-home consumption and strong store additions. 
 

In FY23, consolidated revenue, Ebitda, and adjusted PAT grew 11 per cent, 8 per cent, and 11 per cent YoY, respectively, to Rs 13,780 crore, Rs 1,860 crore, and Rs 1,080 crore, respectively. Operating cash flow and free cash flow to the firm (post-reinvestments into business) for FY23 stood at Rs 1,460 crore and Rs 1,150 crore against Rs 1,520 crore and Rs 1,240 crore in FY22. The CFO/Ebitda ratio was 79 per cent. 
 

The management guidance is for margin improvement in the international business by Q2FY24, with margin expected to be at least 100-150 bps higher than the consolidated Ebit margin. Its India business should also see an Ebit margin improvement in FY24. Salt and tea growth rates will be mid-single digits. NourishCo’s distribution network expansion leads to revenue targets of Rs 1,000 crore in FY24 (versus Rs 620 crore in FY23). Total reach of 3.8 million outlets should increase to 4 million by September 2023.
 

Its shares gained 9.5 per cent over the past month to reach Rs 862.45 apiece and hit a new 52-week high on Wednesday. According to Bloomberg, 4 of five analysts polled in June have a “buy” rating (one is neutral) with an average target price of Rs 886.