Tata Consumer Products - The show ('show me story') is on track - ICICI Securities

TCPL delivered a high quality 3Q (10% volume growth in India Beverages and 12% in India Foods). Benefits of distribution integration are visible now. We note (1) despite steep input inflation and price hikes, it reported strong volume growth across segments with market share gains, (2) while there is steep impact on gross margin, the EBITDA margin decline is lower due to operating leverage and cost savings (adspends were higher by 4.1%) and (3) reduction in receivable days by 50% in Dec'20 from 35 days as of Mar'20. We believe strategic acquisitions such as Soulfull can potentially drive strong value in medium term as these small but strong brands can leverage distribution network of TCPL and benefit from TATA brand equity (please see our thematic on BOLT-ONS). There is faster-than-expected recovery in Starbucks with 92% stores open now. It is also EBITDA positive in Dec'20. BUY with SoTP based target price of Rs720.

- Q3FY21 results: TCPL reported revenue, EBITDA and adjusted PAT growth of 23.1%, 13.6% and 64%, respectively. Constant currency growth was 21%. Segment-wise revenue growth rates: India Beverages 46%, India Foods 18.8% and International Beverages 8.8%. India Beverages and Foods reported volume growth of 10% and 12%, respectively. Foodservice (International) reported revenue decline of 28% YoY. Gross margin declined 570bps due to higher input prices but EBITDA margin declined just 100bps due to due to cost saving initiatives and operating leverage. Standalone revenues were up 34.1% but PAT declined 0.9% YoY.

- Distribution merger on track: The company has completed the distribution consolidation in Q3FY21 and all the distributors are now Food & Beverage distributors in India. The number of distributors are lower by 63% but the sales representatives have increased by 30%. The outlets billed are also up 65% YoY. The feet on street in rural India is up 3x. TCPL was also able to reduce the accounts receivable days by 50%.

- Acquisition of Soulfull; a strategic fit: TCPL acquired 100% shares of Kottaram Agro Foods (Soulfull) for a consideration of Rs1,560mn. The acquisition is at ~4x EV/Sales considering Soulfull's revenues of Rs390mn. We believe it is value accretive acquisition for TCPL as (1) it is strategic fit for the company, (2) there will be synergies in distribution as Soulfull is distributed through just 15,000 outlets and (3) Leveraging 'TATA' brand name will strengthen brand equity of Soulfull.

- 92% Starbucks stores open now: Starbucks added 13 new stores in Q3FY21 taking the tally to 209 stores. The revenues in Dec'20 were 90% of Dec'19 revenues (77% like-to-like basis) with strong MoM recovery. Now 92% of the stores are open and Tata Starbucks is now EBITDA positive in Dec'20

- Reiterate BUY: We model TCPL to report revenue and PAT CAGR of 13.9% and 27.2%, respectively over FY20-23E. We maintain BUY and value the stock on SoTP basis with target price of Rs720. Key risk is execution - delays in realising integration gains, ramp up of distribution etc.

Shares of Tata Consumer Products Limited was last trading in BSE at Rs.575.55 as compared to the previous close of Rs. 584.45. The total number of shares traded during the day was 271731 in over 11036 trades.

The stock hit an intraday high of Rs. 596.3 and intraday low of 567.25. The net turnover during the day was Rs. 156566034.

Source : Equity Bulls

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