Tata Consumer: Tata Starbucks- annual report analysis FY23

30 Nov 2023 , 11:01 AM

Recommendation: Add; Target price: Rs 950

 

Tata Starbucks JV continued the strong momentum in FY23, delivering a top-line growth of 71% and increase in sales-perstore of 39%. At 71%, gross margin remained flat, whereas the pre IndAS 116 Ebitda margin (ex-royalty) came in at 13.8% (vs 5.7% in FY22), led by high revenue growth and improved operating leverage. Net working capital was at 10 days of sales (vs 7 days of sales in FY22); capex per new store came in at Rs29.7mn (+18.2% YoY). Analysts of IIFL Capital Services value the JV at Rs.63 per share for TCPL. 

Strong sales growth:

FY23 marked net addition of 65 new stores; taking the total store-count to 333 (vs 268 in FY22) and marking its presence in 41 cities across India (vs 26 cities in FY22). Top line grew by 71% YoY (~27% on a 3yr Cagr basis) and reported YoY sales-perstore growth of 39% (3.7% on 3 yr Cagr basis, second fastest in the QSR space). 

Gross margin stabilises; Ebitda margin expands: 

For FY23, gross margin remained flat at 71%. Excluding royalty costs, the company reported Ebitda (pre-IndAS 116 basis) of Rs1.5bn; reflecting Ebitda margin of 13.8% (pre-IndAS 116 basis) vs 5.7% in FY22, primarily driven by operating leverage in employee cost and other expenses. Employee cost and other expenses as a % of sales fell by 1.8%/4.4% in FY23. Capex per store of Rs.2.6bn was in line with QSR space, adjusted for store size. 

Robust growth in future: 

Analysts of IIFL Capital Services forecast revenues for Tata Starbucks to reach Rs35bn in FY30; reflecting a top-line Cagr of 18% over FY23-30, driven by a growing store network (~830 stores by FY30) and a salesper-store Cagr of 3% over FY23-30. Pre IndAS 116 Ebitda margin (exroyalty) is expected to reach ~18% by FY30, driven by strong top-line growth and improved operating leverage. Analysts of IIFL Capital Services value TCPL’s share in Starbucks at Rs63 per share (30x EV/Ebitda FY30, discounted back).