Q3FY24 Review: Tata Consumer: Increase in scale boosts margins

9 Feb 2024 , 12:21 PM

TCPL reported a strong quarter with a top-line growth of 9.5%. The tea business reported a value growth of 4% (2% volumes) and salt business grew by 6% (5% volumes) with premium segments outperforming the mass end. The growth businesses continued its strong growth trajectory and reported a 42% growth and accounted for 17% of India business. With the acquisition of Capital Foods (CF) and Organic India (OI), TCPL is well placed to be a formidable player in the pantry space. Analysts of IIFL Capital Services believe that the growth businesses (including CF & OI) will continue to deliver strong top-line growth by leveraging the vast distribution network of TCPL (Direct/Total reach of 1.5mn/3.9mn outlets). They broadly maintain their EPS estimates. Maintain ADD, TP ₹1150. 

Sales in line, beat on margins: 

TCPL reported a sales growth of 9.5% (in line) and Ebitda growth of 26% (vs analysts of IIFL Capital Services estimate of 20%). The India business continued its steady momentum and reported a sales growth of ~10% with premium segments outperforming the mass-end. The international business reported a 11% sales growth (6% in CC terms). The growth businesses reported a growth of 42% and contributed to 17% of India business. Softening of commodity prices aided in margin expansion. Ebitda/PAT grew by 26%/19%. 

Growth businesses continue strong growth trajectory: 

The growth businesses continued the strong growth trajectory by reporting sales growth of 42% (39% in Q2FY24) and contributed to 17% of India business (vs 13% in Q3FY23). Sampann/NourishCo reported a growth of 40%/34%. TCPL has stated that the front-end sales integration of Capital Foods (CF) is substantially completed. With acquisition of CF and Organic India (OI), TCPL aims to increase the contribution of growth businesses to ~30% of India business sales and expects the margins to improve with increase in scale. Analysts of IIFL Capital Services expect the growth businesses to continue its strong growth momentum and will be the key growth driver going ahead. 

Maintain ADD, TP Rs1150: 

Analysts of IIFL Capital Services broadly maintain their sales and EPS estimate. They expect EPS to grow by ~14%/21% in FY25/26. They expect the Ebitda margin for FY24 to be 14.8% (14.7% in 9MFY24).