Tata Consumer's growth story indicates more stock gains in the offing

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
Tata Consumer Products’ (TCPL’s) — formerly Tata Global Beverages — share price surged 3.2 per cent after the company announced the acquisition of PepsiCo’s stake in NourishCo Beverages. 

NourishCo, which owns ready-to-drink beverage brands like Himalayan (mineral water) and Tata Gluco Plus (on-the-go re-hydration solution), 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, adding to its growth levers, and extending synergy benefits, analysts say it comes at a time when TCPL is expected to grow at a healthy pace, indicating strong upside potential for its stock.

Motilal Oswal Securities’ analysts say: “TCPL deals in salt/tea/coffee/pulses, for which demand has not been materially impacted due to Covid-19 pandemic.” 
With the merger of Tata Chemicals’ consumer business reflecting in the base, many analysts foresee high-single digit top line growth for TCPL in 2020-21 (FY21), which is relatively better than the 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 items.

 
In the fourth quarter (Q4) as well, TCPL’s comparable sales volumes (excluding Tata Chemicals’ merged consumer business) grew 3 per cent year-on-year (YoY), helped by its beverage portfolio (domestic and international), compared to a volume decline reported by some FMCG peers. 

With this, TCPL’s top line grew 6 per cent and earnings before interest, tax, depreciation, and amortisation 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 improving, says the management.

Analysts also believe additional growth push will come from the new management. 

Kotak Institutional Equities says TCPL will have an aggressive growth mindset and execution under the new Chief Executive Officer Sunil D’Souza. D’Souza is also expected to expand TCPL’s distribution reach. The caveat, however, is that the near-term performance of JVs (Starbucks) may prove to be a drag on TCPL’s consolidated bottomline. Even in Q4, the share of losses in JVs and exceptional items led to a Rs 122.5-crore loss. 

As the lockdown pain subsides, synergy benefits from the merger of Tata Chemicals’ consumer business and expected cost efficiencies will be more visible in profits. Despite lockdown-led disruption, JM Financial estimates TCPL’s earnings to grow 10 per cent in FY21, and 20 per cent in FY22.

Overall, analysts foresee over 20 per cent upside in the stock, which trades at 36x its 2021-22 earnings.



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