Tata Consumer Products' (TCPL's) share price surged 3.2 per cent after the company announced the acquisition of PepsiCo’s stake in NourishCo Beverages. NourishCo, which owns popular beverage brands like Himalayan (mineral water), Tata Gluco Plus, etc, is a 50:50 joint venture between TCPL and PepsiCo. While the move is in line with TCPL’s focus on expanding its consumer business and would add to its growth levers and extend synergy benefits, analysts say it comes at a time when TCPL itself is expected to grow at a healthy pace, indicating strong upside potential for its stock.

“TCPL deals in salt/tea/coffee/pulses, for which demand has not been materially impacted due to Covid-19,” said analysts at Motilal Oswal Securities. With the merger of Tata Chemicals’ consumer business reflecting in the base, many analysts foresee high-single digit topline growth for TCPL in FY21, which is relatively better than projections for peers such as Marico. The recent merger of Tata Chemicals’ consumer business has strengthened TCPL’s portfolio, 90 per cent of which now comprises essential food products.

In Q4 also, TCPL’s comparable sales volumes (excluding Tata Chemicals’ merged consumer business) grew by 3 per cent year-on-year helped by its beverage portfolio (domestic and international) as compared to a volume decline reported by some FMCG peers. With this, TCPL’s top-line grew by 6 per cent and Ebitda by 29 per cent yoy in Q4. Reported figures were up 35.5 per cent and 77 per cent, respectively.

While food business volumes (demerged from Tata Chemicals) slipped 1 per cent in Q4, it was mainly due to supply chain issues and is now improving, says the management.

Analysts also believe that going ahead, additional growth push would come from the new management. Kotak Institutional Equities says that TCPL would have aggressive growth mindset and execution under the new CEO, Sunil D’Souza (who joins from Whirlpool after a commendable stint). D’Souza is also expected to expand TCPL’s distribution reach.

The caveat, however, is that the near-term performance of joint ventures (Starbucks), may prove to be a drag on TCPL’s consolidated bottom-line. Even in Q4, share of losses in joint ventures and exceptional items led to a Rs 122.5 crore net loss. As lockdown pain subsides, synergy benefits from merger of Tata Chemicals’ consumer business and expected cost efficiencies would be more visible in profits.

Notably, despite the lockdown-led disruption, JM Financial estimates TCPL's earnings to grow by 10 per cent in FY21 and by 20 per cent in next financial year.

Overall, analysts foresee over 20 per cent upside in the stock, which trades at 36 times FY22 earnings.