Equity Research INDIA

August 11, 2022

BSE Sensex: 58817 Tata Consumer Products BUY
ICICI Securities Limited
Maintained
is the author and
distributor of this report
Consolidation phase Rs791
India Beverages and Foods volume performance of +1% and -3% YoY was
underwhelming. High base (Food volumes +17% in 1QFY22) is one of the reasons.
Q1FY23 results review
That said, >20% price increase in salt (in last 18 months) had likely resulted in
Consumer Staples & higher profit pool for competitors to channelize it towards higher trade margins
Discretionary (per our channel checks - link).
That said, we like, (1) aggression to introduce new products such as plant-based
Target price Rs925
protein products under Tata Simply Better, multiple variants of Tata Soulfull and
spices for South India under Tata Sampann and honey and spreads under
Shareholding pattern Himalayan brand, (2) TCPL has continued to gain market shares in Tea (40bps)
Dec
‘21
Mar
‘22
Jun
‘22
and Salt (400bps) in Q1FY23 and (3) While there in steep increase in ad-spend (up
Promoters 34.7 34.7 34.7 33.7% YoY) and energy costs, TCPL has still managed to improve EBITDA margin
Institutional
investors 39.1 39.1 39.3 by 47bps YoY underlining our thesis of structural EBITDA margin expansion
MFs and others 7.0 6.1 6.0 towards mid-to-high teens in medium term from 10.8% in FY19.
Banks/FIs 0.3 0.3 0.2
Insurance 5.7 6.9 7.3
FIIs 26.1 25.8 25.8 We also expect the benefits of simplification of corporate structure to be unlocked
Others 26.2 26.2 26.0 in FY22-24. Starbucks was EBIT positive in Q1FY23 after adding seven stores.
Source: BSE
Maintain BUY; we reckon there will be opportunities in stock volatility for long-
Price chart term investors.
1,000  Q1FY23 results: TCPL reported consolidated revenue, EBITDA and PAT growth of
800
10.6%, 14.5% and 70.8% YoY, respectively. Constant currency growth was 10%.
600
Segment-wise YoY revenue growth rates: India Beverages 3%, India Foods 19%,
(Rs)

400
US Coffee 20%, International Tea 2% and Tata Coffee 25%. India Beverages and
200
Foods reported volume growth of 1% and -3% YoY, respectively. Gross margin was
0
up 186bps and EBITDA margin was up 47bps YoY due to higher ad-spend.
Feb-20

Feb-21

Feb-22
Aug-19

Aug-20

Aug-21

Aug-22

Standalone revenues, EBITDA and PAT were up 5.6%, 12% and -19.7% YoY,
respectively.
 Strong investments in innovation: TCPL has introduced multiple new products
such as (1) Pure spices (chili, turmeric, and coriander) for South India market, (2)
Tata Coffee Cold Coffee liquid concentrate in three variants, (3) Tata ORS+ with
glucose and electrolytes and Tetley Cold Brew (USA). It has also introduced
multiple variants of Tata Soulfull Masala Oats+ and Himalayan honey and spreads.
It has launched differentiated plant based protein products under ‘Tata Simply
Better’ such as patty, nuggets, kebabs. The ‘New engines of growth’ (Soulfull,
Sampann, Himalayan and Tata Q) reported revenue growth of 53% YoY.
Research Analysts:
Market Cap Rs729bn/US$9.2bn Year to March FY21 FY22 FY23E FY24E
Manoj Menon
manoj.menon@icicisecurities.com Bloomberg TATACONS IN Revenue (Rs mn) 1,16,020 1,24,254 1,41,092 1,57,958
+91 22 6807 7209 Shares Outstanding (mn) 921.6 Adj. Net Profit (Rs mn) 8,654 9,794 12,150 14,467
Aniruddha Joshi 52-week Range (Rs) 882/660 Dil. Rec. EPS (Rs) 9.4 10.6 13.2 15.7
Aniruddha.joshi@icicisecurities.com
+91 22 6807 7249 Free Float (%) 65.3 % Chg YoY 26.0 13.2 24.1 19.1
Aniket Sethi FII (%) 25.8 P/E (x) 84.1 74.3 59.9 50.3
aniket.sethi@icicisecurities.com Daily Volume (US$'000) 19,795 CEPS (Rs) 12.2 13.6 16.2 18.9
+91 22 6807 7632
Absolute Return 3m (%) 6.9 EV/EBITDA (x) 46.0 41.3 36.2 31.4
Karan Bhuwania
karan.bhuwania@icicisecurities.com Absolute Return 12m (%) 3.2 Dividend Yield (%) 0.5 0.6 0.6 0.7
+91 22 6807 7351 Sensex Return 3m (%) 9.1 RoCE (%) 7.5 8.0 9.0 10.2
Sensex Return 12m (%) 9.1 RoE (%) 6.1 (0.1) 7.8 8.8
Please refer to important disclosures at the end of this report
Tata Consumer Products, August 11, 2022 ICICI Securities
 Market share expansion continues in India business: TCPL continues to
achieve dual targets of market share expansion and margin improvement in India
business. India tea and India salt gained market share of 40bps and 400bps,
respectively YoY. We note distribution expansion, steady launches of
differentiated products and increase in ad-spend (up 33.7% YoY) have led to
market share gains.
 Update on distribution expansion: While TCPL is on track to reach direct
distribution of 1.5mn outlets by end of FY23, it also plans to double its wholesale
reach. The Modern trade channel reported revenue growth of 35% whereas the
two-year CAGR in e-commerce was 73%. It now accounts for 8.2% of sales.
 Starbucks was EBIT positive during Q1FY23: Starbucks has 275 stores in 30
cities now. It added seven new stores during Q1FY23 and also entered four new
cities. It reported revenue growth of 238% YoY on a favorable base.
 Muted volume performance in International: US coffee and International Tea
reported revenue growth of 20% and 2% YoY, respectively. However, we note US
coffee and International Tea reported volume decline of 3% and 2%, respectively.
We believe volume growth was largely impacted by steep inflation and likely some
pantry de-stocking.
 Retain BUY: We model TCPL to report revenue and PAT CAGR of 12.7% and
21.5%, respectively over FY22-24E. We maintain BUY and value the stock on
SoTP basis with a target price of Rs925. Key risk is execution - delays in realising
integration gains, ramp up of distribution, etc.

Table 1: Q1FY23 results review (consolidated)

(Rs mn)
Jun-22 Jun-21 YoY (%) Mar-22 QoQ (%)
Revenue from operations 33,268 30,085 10.6 31,754 4.8
Cost of Materials (19,091) (17,824) 7.1 (17,587) 8.6
Gross profit 14,178 12,261 15.6 14,167 0.1
Employee costs (2,774) (2,654) 4.5 (2,680) 3.5
Ad-spend (2,116) (1,582) 33.7 (2,256) (6.2)
Other expenses (4,714) (4,029) 17.0 (4,788) (1.5)
EBITDA 4,573 3,995 14.5 4,443 2.9
D&A (729) (668) 9.2 (721) 1.1
EBIT 3,844 3,327 15.5 3,722 3.3
Interest expense (163) (204) (20.4) (164) (0.9)
Other income 353 280 26.2 474 (25.4)
PBT 4,035 3,403 18.6 4,032 0.1
Income tax provision (1,030) (957) 7.6 (953) 8.0
PAT before EO and MI 3,005 2,446 22.9 3,079 (2.4)
MI (142) (364) (61.1) (209) (32.3)
Share of assoc earnings 2 (404) (100.5) (502) (100.4)
Recurring PAT 2,865 1,678 70.8 2,368 21.0
EO items (1,101) 1,298 (184.8) 91 (1,306.9)
Reported PAT 1,765 2,976 (40.7) 2,459 (28.2)

Margin (%)
Gross margins 42.6 40.8 44.6
EBITDA 13.7 13.3 14.0
EBIT 11.6 11.1 11.7
Recurring PAT 8.6 5.6 7.5
ETR (%) 25.5 28.1 23.6
Source: Company data, I-Sec research

2
Tata Consumer Products, August 11, 2022 ICICI Securities

Table 2: Q1FY23 results review (standalone)

(Rs mn)
Jun-22 Jun-21 YoY (%) Mar-22 QoQ (%)
Revenue from operations 20,769 19,659 5.6 19,484 6.6
Cost of materials (12,892) (12,837) 0.4 (11,670) 10.5
Gross profit 7,877 6,822 15.5 7,815 0.8
Employee costs (979) (884) 10.8 (803) 21.9
Ad-spend (1,275) (861) 48.0 (1,421) (10.3)
Other expenses (2,555) (2,338) 9.3 (2,715) (5.9)
EBITDA 3,068 2,739 12.0 2,876 6.7
D&A (351) (349) 0.6 (351) 0.1
EBIT 2,717 2,390 13.7 2,526 7.6
Interest expense (71) (77) (6.8) (72) (0.7)
Other income 539 1,462 (63.1) 379 42.3
PBT 3,185 3,776 (15.7) 2,833 12.4
Income tax provision (746) (739) 0.9 (664) 12.2
PAT before EO 2,439 3,037 (19.7) 2,168 12.5
Recurring PAT 2,439 3,037 (19.7) 2,168 12.5
EO items (41) (22) 85.0 107 (138.0)
Reported PAT 2,399 3,015 (20.5) 2,275 5.4

Margin (%)
Gross 37.9 34.7 40.1
EBITDA 14.8 13.9 14.8
EBIT 13.1 12.2 13.0
Recurring PAT 11.7 15.5 11.1
ETR (%) 23.4 19.6 23.5
Source: Company data, I-Sec research

Table 3: Q1FY23 segment review (Consolidated)

(Rs mn)
Jun-22 Jun-21 YoY (%) Mar-22 QoQ (%)
Segment Revenues
India Business 21,452 19,718 8.8 19,537 9.8
International Beverages 8,366 7,676 9.0 8,902 (6.0)
Non branded business 3,517 2,776 26.7 3,446 2.0
Others 74 27 171.4 3 2,644.4
Less: Intersegment (141) (113) 25.3 (134) 5.6
Total 33,268 30,085 10.6 31,754 4.8

Segment EBIT
India Business 2,732 2,467 10.7 2,575 6.1
International Beverages 1,045 960 8.8 1,285 (18.7)
Non branded business 394 186 111.5 293 34.5
Total 4,170 3,614 15.4 4,153 0.4

Segment EBIT margin

India Business 12.7% 12.5% 13.2%
International Beverages 12.5% 12.5% 14.4%
Non branded business 11.2% 6.7% 8.5%
Total 12.5% 12.0% 13.1%
Source: Company data, I-Sec research

3
Tata Consumer Products, August 11, 2022 ICICI Securities

Chart 1: India Beverages volume growth Chart 2: Segment-wise volume growth (Q1FY23)
25 10
8
20
6
4
15

(%)
2
(%)

10 0
-2
5 -4

India Beverages

Tata Coffee
International Tea
US Coffee
India Foods
0
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21
Q1FY22
Q2FY22
Q3FY22
Q4FY22
Q1FY23
Source: Company data, I-Sec research Source: Company data, I-Sec research

4
Tata Consumer Products, August 11, 2022 ICICI Securities

Key charts – Quarterly (Consolidated)

Chart 3: Revenues and growth rates Chart 4: Net profit and growth rates

Revenues YoY Growth (%) Net profit YoY Growth (%)

35000 40 3500 700

30000 35 3000 600
30 500
25000 2500
25
400
(Rs mn)

(Rs mn)
20000 20 2000
300
15000 15 1500
200
10
10000 1000 100
5
5000 0 500 0
0 -5 0 -100
Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22
'Jun-17

'Jun-17
Dec-17

Dec-18

Dec-19

Dec-20

Dec-21

Dec-17

Dec-18

Dec-19

Dec-20

Dec-21
Source: Company data, I-Sec research Source: Company data, I-Sec research

Chart 5: Gross margin (%) Chart 6: PAT margin (%)

Gross margin PAT m argin

50 12
45
40 10
35 8
30
25 6
20
15 4
10 2
5
0 0
Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22
Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22
Dec-17

Dec-18

Dec-19

Dec-20

Dec-21

Dec-17

Dec-18

Dec-19

Dec-20

Dec-21
Sep-17

Sep-18

Sep-19

Sep-20

Sep-21

Sep-17

Sep-18

Sep-19

Sep-20

Sep-21
Source: Company data, I-Sec research Source: Company data, I-Sec research

Chart 7: EBITDA margin (%) Chart 8: Effective tax rate (%)

EBITDA m argin Effective tax rate

20 40
18 35
16
30
14
12 25
10 20
8 15
6
10
4
2 5
0 0
Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22
Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22
Dec-17

Dec-18

Dec-19

Dec-20

Dec-21

Dec-17

Dec-18

Dec-19

Dec-20

Dec-21
Sep-17

Sep-18

Sep-19

Sep-20

Sep-21

Sep-17

Sep-18

Sep-19

Sep-20

Sep-21

Source: Company data, I-Sec research Source: Company data, I-Sec research

5
Tata Consumer Products, August 11, 2022 ICICI Securities
Key charts - Annual
Chart 9: Revenues and growth rates Chart 10: EBITDA margin
170000 EBITDA margin Mean +1SD -1SD
18
150000
17
130000 16
15
110000
(Rs mn)

14

(%)
90000 13
12
70000 11
10
50000
9
30000 8

FY07

FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22

FY08

FY23E
FY24E
FY23E
FY24E
Source: Company data, I-Sec research Source: Company data, I-Sec research

Chart 11: Net profit and growth rates Chart 12: RoE & RoCE
16,000 RoE RoCE Cost of Capital
14,000 16

12,000 14
12
10,000
10
(Rs mn)

8,000
8
(%)

6,000
6
4,000
4
2,000 2
0 0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
(2,000) -2
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18

FY20
FY21
FY22
FY19

FY23E
FY24E

Source: Company data, I-Sec research Source: Company data, I-Sec research

Chart 13: Net working capital days Chart 14: Gross margin & ad-spend
160 Gross margin Ad-spend as % of Net Sales
140 70

120 60

100 50
(Days)

80 40
(%)

60 30

40 20

20 10

0 0
FY07
FY08
FY09
FY10

FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY11
FY12

FY07
FY08
FY09

FY11
FY12
FY13
FY14

FY16
FY17
FY18
FY19

FY21
FY22
FY10

FY15

FY20
FY23E
FY24E

FY23E
FY24E

Source: Company data, I-Sec research Source: Company data, I-Sec research

6
Tata Consumer Products, August 11, 2022 ICICI Securities
Chart 15: Mean P/E(x) and standard deviation
TCPL P/E -1 Std Dev. Mean +1 Std Dev.

70
60
50
40

(x)
30
20
10
0
Feb-12

Feb-13

Feb-14

Feb-16

Feb-18

Feb-20

Feb-22
Feb-15

Feb-17

Feb-19

Feb-21
Aug-11

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-20

Aug-22
Aug-12

Aug-17

Aug-19

Aug-21
Source: Company data, I-Sec research

7
Tata Consumer Products, August 11, 2022 ICICI Securities

Financial summary
Table 4: Profit & loss statement Table 6: Cashflow statement
(Rs mn, year ending March 31) (Rs mn, year ending March 31)
FY21 FY22 FY23E FY24E FY21 FY22 FY23E FY24E
Net Sales 1,16,020 1,24,254 1,41,092 1,57,958 Operating Cashflow 14,729 14,534 15,029 17,201
Operating Expenses 1,00,583 1,07,066 1,21,456 1,35,351 Working Capital
EBITDA 15,438 17,188 19,636 22,607 1,834 23 (9,190) (939)
Changes
% margins 13.3 13.8 13.9 14.3 Capital Commitments (4,033) (9,822) (2,822) (3,159)
Depreciation & Free Cashflow 12,531 4,735 3,016 13,103
2,547 2,780 2,794 2,921
Amortisation Cashflow from
Gross Interest 687 728 438 151 (4,084) (13,218) (1,158) (1,496)
Investing Activities
Other Income 1,214 1,401 1,664 1,664 Issue of Share Capital - - - -
Recurring PBT 13,417 15,081 18,067 21,198 Inc (Dec) in Borrowings (1,678) (6,100) (8,126) (151)
Less: Taxes 3,173 3,770 4,607 5,406 Dividend paid (2,582) (3,848) (4,654) (5,115)
Less: Minority Interest (1,590) (1,516) (1,310) (1,325) Chg. in Cash & Bank
Net Income (Reported) 9,842 9,866 12,150 14,467 8,219 (8,609) (8,100) 9,500
balance
Extraordinaries (Net) 1,188 72 - - Closing cash & balance 17,732 9,170 17,899 27,400
Recurring Net Income 8,654 9,794 12,150 14,467 Source: Company data, I-Sec research
Source: Company data, I-Sec research
Table 7: Key ratios
Table 5: Balance sheet
(Year ending March 31)
(Rs mn, year ending March 31) FY21 FY22 FY23E FY24E
FY21 FY22 FY23E FY24E Per Share Data (Rs)
Assets EPS 9.4 10.6 13.2 15.7
Total Current Assets 70,486 71,357 68,705 82,311 Cash EPS 12.2 13.6 16.2 18.9
of which cash & cash eqv. 30,749 25,999 17,899 27,400 Dividend per share (DPS) 4.1 4.6 5.1 5.6
Total Current Liabilities & Book Value per share (BV) 157.7 164.3 172.4 182.6
26,614 24,039 19,458 21,784
Provisions
Net Current Assets 43,872 47,318 49,247 60,528
Investments 14,528 17,034 16,657 16,301 Growth (%)
Net Fixed Assets 1,16,036 1,19,888 1,19,916 1,20,154 Net Sales 20.4 7.1 13.6 12.0
Capital Work-in-Progress 1,129 2,470 2,470 2,470 EBITDA 19.5 11.3 14.2 15.1
Total Assets 1,75,564 1,86,710 1,88,290 1,99,452 PAT 23.8 12.4 19.8 17.3
DPS 50.0 12.3 11.0 9.9

Liabilities
Borrowings 13,973 16,437 9,608 10,467 Valuation Ratios (x)
Deferred Tax Liability 5,321 7,337 7,337 7,337 P/E 84.1 74.3 59.9 50.3
Minority Interest 10,925 11,516 12,430 13,380 P/CEPS 65.0 57.9 48.7 41.9
Equity Share Capital 922 922 922 922 P/BV 5.0 4.8 4.6 4.3
Face Value per share (Rs) 1.00 1.00 1.00 1.00 EV / EBITDA 46.0 41.3 36.2 31.4
Reserves & Surplus* 1,44,424 1,50,498 1,57,994 1,67,346 EV / Sales 6.1 5.7 5.0 4.5
Less: Misc. Exp. n.w.o.
Net Worth 1,45,345 1,51,419 1,58,915 1,68,268 Operating Ratios
Total Liabilities 1,75,564 1,86,710 1,88,290 1,99,452 Raw Material / Sales (%) 59.5 57.0 57.4 57.0
Source: Company data, I-Sec research Employee cost / Sales (%) 8.4 8.4 8.4 8.4
Other exps / Sales (%) 18.8 20.7 20.4 20.4
Other Income / PBT (%) 9.0 9.3 9.2 7.8
Effective Tax Rate (%) 23.6 25.0 25.5 25.5
Working Capital (days) 39.3 70.7 86.0 79.0
Inventory Turnover (days) 70.8 70.0 69.0 68.0
Receivables (days) 24.0 24.0 21.0 18.0
Payables (days) 51.1 50.0 36.0 36.0
Net D/E (x) (0.2) (0.1) (0.1) (0.2)

Profitability Ratios (%)

Net Income Margins 7.5 7.9 8.6 9.2
RoACE 7.5 8.0 9.0 10.2
RoAE 6.1 (0.1) 7.8 8.8
Dividend Payout 43.1 42.8 38.3 35.4
Dividend Yield 0.5 0.6 0.6 0.7
EBITDA Margins 13.3 13.8 13.9 14.3
Source: Company data, I-Sec research

8
 Tata Consumer Products, August 11, 2022 ICICI Securities

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New I-Sec investment ratings (all ratings based on absolute return)
BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return
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