Tata Consumer Products (TATACONS IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: Not Rated | CMP: Rs807 | TP: NA

Ring Side View - On track to become a diversified FMCG major

Quick Pointers:

Core businesses to grow in high-single to low double digit in medium term

Huge opportunity to grow as branded pulses are just 3% of Rs1.5trln market

Cover opportunities in F&B before entry into HPC categories.

We hosted Mr. L Krishnakumar - ED & CFO & Ms. Nidhi Verma – Head of Investor Relations for a fireside chat on “Journey towards A Diversified Foods and Beverages Company”. TCPL has undertaken several initiatives to improve their presence in the FMCG space through a) increase in distribution (direct reach of 1.5mn in FY23 vs 0.5mn in FY20) b) focus on large categories such as Tata Sampann (pulses, spices and dry fruits) c) entry into high growth categories with Soulfull (breakfast cereals, mini meals and snacking options) d) Nourishco: 2x increase in capacity significant ramp up in distribution and new innovations e) improving management bandwidth with merger of Tata Coffee with Tata Consumer Products and f) acquisitions in niche product offerings.

We believe Tata Consumer will continue to focus on distribution expansion across segments - more so in NourishCo and taking Tata Sampann deeper in general trade. We expect NourishCo, Tata Soulfull and Tata Sampann to grow in high double digits and increase their share in sales from current 15% in coming years. We believe steady growth in core Tea business and sustained traction in high growth segments will enable TCPL to report strong growth in coming years. The stock trades at 44.7x FY25 consensus EPS. Not Rated.

Distribution: The company has increased its direct reach from 0.5mn outlets in FY20 to 1.5-2mn outlets in FY23. We expect sustained distribution expansion in NourishCo and GT for Tata Sampann.

Innovation: The pace of new launches increased to 34 in FY23 (from 14/19 in FY21/22) and increased its salience to 3.4% (1.4%/2.7% in FY21/22)

NourishCo: Sales crossed Rs 6bn in FY23 supported largely by increase in distribution and launch of new variants. Sustained innovations and distribution expansion will enable 50% CAGR in sales in near to medium term.

Soulfull: The company is present in the breakfast cereals and snacking options. Innovation will be a key and growth driver with new products launches expected every 3-4 months. Broad based snacking portfolio will enable Soulfull sustain high double digit growth post 100% growth in FY23.

Tata Sampann – Tata Sampann has moved from pulses to spices, value added masalas and dry fruits. Tata Sampann is aiming for 30% sales CAGR and aims for gradual premiumisation in largely commoditized category.

Tata Grand – Tata Coffee is focusing on branding in this segment with Tata Grand classic and Tata Grand premium. It plans to increase market share from current 3-4% to double digit over coming few years.

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