Q1FY24 Review: Tata Consumer: Growth businesses firing well

28 Jul 2023 , 11:37 AM

Tata Consumer (TCPL) reported Q1FY24 results, which were slightly above analysts of IIFL Capital Services estimates, largely driven by higher margin performance in International Tea + NourishCo business. Delivering 58% growth in Q1, growth businesses are firing well and management would continue to scale these up rapidly. Analysts of IIFL Capital Services upgrade their EPS estimates by 2-4% for FY25/26 and forecast EPS Cagr of 17.4% over FY23-26. Maintain ADD rating with a target price of Rs900. 

Slight beat on Ebitda: 

TCPL reported sales growth of 12.5% (inline) however, beat on Ebitda recording an Ebitda growth of 19.2% (3.5% above estimate). International Tea + NourishCo Ebitda margin improved 230bps YoY to 9.8%, resulting in Ebitda beat. India Tea business recorded 3% volume growth, but lost market share by 110bps. India Foods grew 24%YoY (6% volume growth) with Salt business growing by 18%. 

Growth businesses up 58%: 

TCPL’s growth businesses (Sampann, Soulfull, NourishCo & Smartfoodz) have been growing steadily over the years and contributed 20% to India branded sales, up from 15% in 1QFY23 and 6% in FY20. NourishCo continues to be the star in this portfolio, delivering a 60% growth (sales of Rs2.9bn in Q1) on a high base and despite adverse weather conditions, driven by both distribution and portfolio expansion. Sampann and Soulfull also delivered a robust performance (growth of 50%+ in Q1). Management expects the growth trajectory to continue and the business’s margin profile to improve with scale.

EPS upgrade of 2-4% for FY25/26: 

While analysts of IIFL Capital Services FY24 EPS is broadly unchanged, they upgrade their FY25/26 EPS estimates by 2%/4% to factor in a faster ramp-up in NourishCo. While core businesses are expected to grow at a modest pace, continued steady execution in growth businesses would drive EPS Cagr of 17.4% over FY23-26. However, valuations are rich (stock trades at 49x FY25 EPS) and leave little room for any execution slip-ups. Analysts of IIFL Capital Services maintain ADD rating with a target price of Rs900.