Sharekhan maintains a Buy on Tata Consumer Products with a revised price target of Rs 685 (rolling it over to FY2023E estimates). The stock is currently trading at 42x its FY2021E earnings. Tata Consumer Products' first half FY21 performance was boosted by higher demand for in house consumption (including tea and packaged food) in the domestic and international markets. Going ahead, market share gains from smaller players in the tea and branded pulses segments, product innovation, higher e-Commerce sales and improving demand for out of home consumption (as the virus scare recedes) would drive revenue over FY2021-23E.

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With the Covid-19 recovery rate inching close to 97% in India and vaccination programmes beginning on schedule, out-of-home consumption will improve in the coming quarters as socialising and intercity mobility increase. This will help ventures such as Tata Starbucks (business recovered to 70% in September ‘20) and NourishCo (recovered to 101% in September ‘20) clock better operating numbers in the coming quarters. In line with its innovation strategy, Tata Consumer Products launched Tulsi green tea and Tata Tea Gold care to build up its immunity-boosting product portfolio.

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On the other hand, new launches such as Poha and Nutria mix along with dosa/vada mix are gaining strong traction on the online platform. Under the leadership of Mr. N Chandrasekaran, the Group is focusing on creating a SuperApp to bring all its consumer businesses on one platform. This will be done through organically or inorganically by acquiring top online retailers. Sustained innovation and higher traction through the online platform will help Tata Consumer Products gain market share from small players in the branded tea and pulses space. The company expects some of these drivers to play a key role in Q3 performance.
Sharekhan expects Q3 FY21 to be yet another strong quarter for the company with revenues and PAT (including the merged entity of Tata Chemicals consumer business) expected to grow by 43% and 89%yoy. Another major tailwind would be the fall in domestic raw tea prices (corrected by 35% from its high in July-August).

Tata Consumer Products management's near term focus is to ensure smooth integration of Tata Chemical’s consumer business and building a large consumer business in the domestic market. In the near term the focus will be on increasing growing the new ventures such as retail coffee and water beverages business and entering into new categories through relevant new launches in view of expected improvement in the out of consumption. The company is well poised to achieve double-digit revenue and PAT growth of 11% and 23% respectively over FY2020-23 with a gradual improvement in OPM.