Q2FY24 Review: Tata Consumer: Strong growth

2 Nov 2023 , 01:59 PM

Tata Consumer (TCPL) reported a strong Q2FY24 result outperforming the FMCG pack with a top-line growth of 11% despite the subdued demand environment. The tea business saw a value growth of 5% (volume 3%) with the premium segment outperforming the mass end. The growth businesses are firing well delivering 39% YoY revenue growth. The management would like to scale these up rapidly. Analysts of IIFL Capital Services forecast EPS Cagr of 17.1% over FY23-26. Maintain ADD; target price Rs950. 

Above estimates: 

For Q2FY24, Tata Consumer reported a consolidated sales growth of 11% as against analysts of IIFL Capital Services estimate of 9.3%. The Indian business witnessed a YoY revenue growth of 11% whereas the international and non-branded business grew by 13% and 4% respectively. The gross margin expanded by 76bps YoY (in line) while the Ebitda margin expanded by 148bps YoY (IIFLe 75bps). The beat on estimate is largely driven by higher than expected Ebitda margin expansion in India (expanded 60bps) and International business (expanded 300bps). 

Growth businesses up by 39%: 

The growth business contributed to 18% of the Indian branded business in Q2FY24 (15% in Q2FY23 as well as for FY23). Tata Sampann delivered yet another strong quarter, growing 47% with a robust volume growth. NoursishCo delivered a 25% YoY growth. The management expects the growth trajectory of these businesses to continue and the margins to improve with increase in scale.

FY24/25/26 EPS downgrade by ~1-1.5%: 

Analysts of IIFL Capital Services expect a sales cut of ~1% for FY24/25/26 and the Ebitda margins to remain in the range of 14.5-15.5% (~50bps YoY expansion each yr). Margins, which are at the lower end of the FMCG pack, will gradually expand on the back of operating leverage as the new businesses scale up. However, at 54x FY25 consol EPS, valuations leave limited room for upside.