Buy Tata Consumer Product; target of Rs 440: ICICI Direct

ICICI Direct's research report on Tata Consumer Products

With the merger process completed, Tata Consumer Products (TCPL) reported its first quarter of consolidated numbers. Revenue growth of 35% included merged foods business sales of Rs 524 crore. On a comparable basis, revenue growth was 6% led by 3% volume growth. The company has not seen any substantial negative impact of lockdowns given tea & salt categories are part of essentials. International tea business & US coffee business grew 8% (3% volume growth) & 15% (entirely volume), respectively, due to stocking up by consumers. Operating margins improved 300 bps with consolidation of foods business and gross margins expansion in international tea business. Due to goodwill impairment of Rs 223 crore for food servicing business in Australia & B2B tea business in US and Rs 41 crore integration cost of foods business, it reported a loss of Rs 123 crore.

Outlook

The new management is sounding much more focussed and talking about potential of new & unpenetrated category along with the growth prospects of existing once. Further with merger, India business contributes 56% to sales, which has the scope to grow faster compared to UK, US & Canada business. We also see potential in margins expansion as other FMCG peers have far superior margin territory. We remain positive on the stock and maintain BUY recommendation with a revised target price of Rs 440/share.

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Date: May 19

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