Q4FY23 Review: Tata Consumer: Lower ad-spends boost margins

27 Apr 2023 , 01:30 PM

Tata Consumer Products (TCPL) delivered strong numbers. Top-line growth of 14%YoY, driven by beat in NourishCo and International Tea business, and Ebitda growth of 15.2%YoY driven by lower ad-spends. With price hikes in Salt anniversarising in coming quarters, we expect revenue growth to slow down. However, margins are set to improve with improving volumes, due to operating leverage and input cost benefit in Salt.

Significant beat: 

TCPL reported sales growth of 14% (3% above estimate) and Ebitda growth of 15.2% (12.6% above estimate). India Tea business recorded 3% volume growth, but lost market share by 113bps. India Foods grew 26%YoY (8% volume growth), largely driven by pricing actions taken in Salt. Standalone Ebitda margin improved 140bps YoY to 16.2% due to 20% YoY cut in ad spends. New engines of growth (Sampann, Soulfull, NourishCo & Smartfoodz) have grown 53%YoY and contribute ~15% of India branded sales in FY23.

Distribution expansion: 

The Company is splitting up the routes for salesman, for the Tea and Food categories in towns with 1mn+ population to increase bandwidth of distribution. As guided earlier, mgmt is on the path to reach 4mn outlets by Sep’23 (3.8mn currently). This would help them gain volumes and market share in Tea. As the sharp price hikes of up to ~33% taken in Salt anniversarise in the coming quarters, sales growth would reduce in India Food business. However, margins in Food business have improved to normative levels, with aggressive pricing actions.

EPS change: 

Analysts at IIFL Capital Services upgrade their EPS estimates by 3% for FY24 while maintaining it largely for FY25, to factor in the improvement in India business margins. With further pricing taken in international business in Q4, they expect margins to improve sharply from FY24 onwards. Analysts forecast revenue/Ebitda/PAT Cagr of 9.2%/13.4%/16.1% over FY23-26. The stock currently trades at 44xFY25 PE. Maintain ADD with a target price of Rs800.