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Tata Consumer transformation journey on track with launches, better distribution

Analysts at Edelweiss Securities note that Tata Consumer has two steady base businesses – salt and tea which have potential for sustaining high single-digit to low-double-digit growth in revenuePremium
Analysts at Edelweiss Securities note that Tata Consumer has two steady base businesses – salt and tea which have potential for sustaining high single-digit to low-double-digit growth in revenue

  • Led by acquisitions in India and higher growth of domestic beverages and foods than international beverages, Tata Consumer's revenue share of the India business increased to about 70% in FY22 from 63% in FY20

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To capture market share and drive premiumization, Tata Consumer Products Ltd has introduced unique products and enhanced distribution, thereby continuing its transformational journey in FY22. E-commerce channel accounted for 7.3% of sales in FY22, up from 2.5% in FY20.

Led by acquisitions in India and higher growth of domestic beverages and foods than international beverages, revenue share of the India business increased to about 70% in FY22 from 63% in FY20. Analysts at ICICI Securities note that increase in India business share is return on capital employed or RoCE and discounted cash flow or DCF accretive.

In the last fiscal year, the company gained 97 basis points (bps) of market share in the tea portfolio. One basis point is one-hundredth of a percentage point. In the salt category, it gained 400bps of market share. This comes at a time when the advertisement spends remained lower when compared to pre-covid levels.

The number of Tata Starbucks stores increased from 221 in FY21 to 268 at the end of FY22. Tata Starbucks is a 50:50 joint venture between Tata Consumer and Starbucks. “We remain enthused by the fact that in spite of expansion (adding negative operating leverage in short term), Tata Starbucks remained Ebitda positive during FY22 - indicating good demand likely resulting in faster store ramp ups," said analysts at ICICI Securities in a report on 21 June. Ebitda is earnings before interest, tax, depreciation and amortization.

Analysts at Edelweiss Securities note that Tata Consumer has two steady base businesses – salt and tea which have potential for sustaining high single-digit to low-double-digit growth in revenue. The company’s newer businesses – pulses and spices are currently small but have huge scope for growth, they added.

“At Rs1.5 trillion, the potential market size of pulses is about 5 times Tata Consumer’s tea (Rs26000 crore) and salt (Rs7000 crore) businesses. At Rs60000 crore, spices is also a large category than Tata Consumer’s existing businesses," said analysts at Edelweiss in a report on 14 June.

Shares of Tata Consumer have declined by 4% so far in calendar year 2022 while Nifty 500 index has declined by 12.4% in the same period.

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