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  • 11 Aug 2022
  • ICICIdirect Research

TATA CONSUMER PRODUCTS REPORTS ROBUST RESULTS

TATACONSUM - 901 Change: -6.35 (-0.70 %)

News: Tata Consumer Products’ Q1FY23 results were slightly ahead of our estimates. Revenue witnessed a growth of 10.6% led by strong growth in India foods & International consumer business. India beverage business (Tea & NorishCo) sales grew by 3.3% led by 1% volume growth & 2.3% price hikes. India foods business saw a growth of 18.8% led by 22% price increase & 3% volume dip. The high inflation in processing (energy & RM) Salt resulted in aggressive price hikes in last one year. Despite high inflation in salt business, gross margin expanded by 186 bps on account of benign tea prices. The company increased its marketing spends by 194 bps (33% jump in spend) to support new launches. Operating profit grew by 14.5% with operating margin expansion of 47 bps to 13.7%. The company reported slight profit from associates of Rs0.2 crore as against a loss of Rs40.4 crore on account of profitability in Starbucks. This along with higher operating profit resulted in net profit growth of 38.2%.

View: Tata Consumer continue to report strong set of numbers driven by price hikes in India food & international businesses. Further, benign tea prices continue to result in gross margins expansion, which gives TCPL leeway to increase its ad-spend behind new brands & categories. The newer products like Tata Sampaan, Tata Soulful, Tata Q, NourishCo brands & new launches under Himalayan brand saw YoY growth of 53% during the quarter. We believe newer products would drive the volume growth for the company in the longer run. Moreover,  Leveraging existing brands for extensions in high margin categories & premiumisation play in saturated categories like Salt & Tea would result in margin improvement going forwards. We believe expansion of Starbucks stores would also aid profitability in future. We remain positive on Tata Consumer on growth outlook & margin expansion possibility.

Impact: Positive.