Tata Consumer share price: Sharekhan maintains Buy rating on Tata Consumer with a revised price target of Rs 740

Tata Consumer Products became a large consumer goods play with a wider product portfolio (hot beverages, staples & water) post the consolidation of Tata Chemicals’ consumer business. This provides visibility for sustainable revenue and earnings growth (with a gradual improvement in OPM). Higher in-house consumption during the pandemic era and an increase in online sales helped the company achieve an 18% revenue growth in 9M FY21 (with the India beverages and India foods business growing by 30% and 17% respectively).Volume growth of beverages and foods stood at 8-9% during the same period. Tata Consumer Products share price closed at Rs 609 in last session, down Rs 19 or 3.1%.

Going ahead, market share gains from small/regional players, consumers from loose tea to branded tea and a healthy traction to new launches would help the Indian branded tea business clock better volume growth of 8-10% versus the overall growth of 4-5% in domestic tea consumption for Tata Consumer. The Indian foods business will scale up because of enhanced distribution reach, shift from loose to branded products and strong acceptance for new launches.

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Further, with the scare of the virus reducing and with lesser chances of a second wave of infections due to increase in vaccinations, out-of-home businesses such as NourishCo and Tata Starbucks would see strong growth in FY22 and FY23 for Tata Consumer.

Globally, a sustained shift from black tea to speciality tea (herbal/fruit tea) in markets such as Europe and Canada will help Tata Consumer post steady high single digit constant currency growth in the coming years.

Thus, Tata Consumer is well-placed to achieve revenue CAGR of 13% over FY 20-23 (much better than 5% revenue CAGR over FY2015-19). With the Indian business’ contribution increased to 60% from 48% earlier the consolidated OPM trajectory improved to 13% in FY20 from 9-10% in FY 15-16. Integration of Tata Chemicals’ consumer business is going on and a large part of it will be completed by Q4 FY21. The full process is expected to be fully completed by H2 FY22.This will help OPM to consistently improve in FY22 and FY23.

Raw tea prices have corrected by 40% to Rs 153 per kg from its peak of Rs 260 per kg in July-August,due to improved tea production after gradual easing of the lockdown. If a new flush season starts with higher crop availability in the market, tea prices are expected to fall, reducing from current levels that will help gross margins to stabilise by Q1 FY22 and improve subsequently.

A sustained correction in domestic raw tea prices might act as an additional earning trigger for margin expansion to stay ahead of expectations. Sharekhan expects Tata Consumer revenues and PAT to clock a CAGR of 13% and 23% over FY2020-23E.