Initiating Coverage Tata Consumer Products Ltd.

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Reuters: TACN.NS; Bloomberg: TATACONS IN

Tata Consumer Products Ltd.

With pieces together, TATA’s FMCG business looks ready for the next phase With the task of bringing the FMCG DNA under one company of Tata Group, i.e., Tata Consumer Products Ltd. (TCPL) done, TCPL has now started to take steps for its India business to become a long-term FMCG player - like overhauling the distribution network, widening distribution and strengthening its digital capabilities. These steps, along with focus on market share movement to branded consumption and continuous innovations across categories bring visibility for long runway of growth for the India business. On the international front, while the revenue growth is low, the company has simplified the business over the last few years. Going forward, we expect consolidated revenue to grow at a CAGR of 10.7% over FY21-24E, led by ~15% growth in India business. Normalization of input costs, mix improvement and scale & synergy benefits over the next few years will result in robust EBITDA margin expansion for TCPL (estimating ~300bps improvement over FY21-24E). We are thus building in 23.8% earnings CAGR over FY21-24E. While there has been a notable improvement in working capital over the last few years, it is fairly unlikely for TCPL’s working capital to turn negative, which is the case for other larger FMCG peers since TCPL’s focus would be on growth and expansion of business. Return ratios, when compared to FMCG peers remain low, but we expect improvement to mid-teens levels in the next four years. Earnings growth trajectory beyond FY24 also remains fairly robust, with good visibility on revenue growth. We thus value TCPL at ~48x on March’2024E EPS, giving us a target price (TP) of Rs870, implying an upside of ~17% from the current market price (CMP).

Bringing order to pan-India distribution: With the merger of the consumer products business of Tata Chemicals (TCL), TCPL has been very vocal, and importantly, has executed the changes in the sales & distribution structure in India. Whether it is eliminating a layer in distribution stream, trimming from 4,500 distributors to 1,500 distributors of scale, surpassing guidance of doubling direct coverage to ~1.1mn outlets (as on 2QFY22), improving total reach to 2.6mn outlets and planning to widen the total reach to +4mn outlets by FY24 or working on expanding rural reach, TCPL is evidently on its way to narrow the distribution gap with its FMCG peers. Apart from focusing on numeric increase in distribution, the company is also focusing on technology to ensure productivity (outlet throughput) of sales force is harnessed to improve the topline growth rate and also make it sustainable.

Drivers for long runway of growth in India business: (1) Tea: The packaged tea market in India is estimated at Rs260bn, with unbranded being ~40%. Both national players (HUL+TCPL) account for ~45% of the market with distant competitors. Being one of the only two dominating national brands, TCPL will be a large beneficiary of the shift to branded consumption. (2) Salt: In contrast to the rest of the categories TCPL operates in, where the presence of unorganized players is significant, the Indian salt market (estimated at Rs60-70bn) has unorganized share of ~12% only. Hence, to drive double-digit growth in the medium term (high single digit over the long term) in salt, the company will be required to (i) continue increasing awareness about better product quality (ii) penetrate the Bottom-of-the-Pyramid (BoP) segment and (iii) drive NPDs. (3) Tata Sampann: Tata Sampann is relatively a newer addition to TCPL’s core domestic portfolio. With total addressable market (TAM) of Rs2,100bn (much higher than Tea + Salt), Tata Sampann's pulses/staples & spices portfolio will be a big beneficiary from the shift to branded consumption. (4) As per the medium-term aspiration to build a large F&B company, TCPL will build on its new legs of growth i.e., RTC/RTE/Snacking offerings and beverages (ex-tea) through expansion of the distribution footprint and higher portfolio offerings. Further, there is opportunity to scale the RTC/RTE/Snacking portfolio via exports to overseas markets as well. (5) TCPL's retail JV i.e., Tata Starbucks has strong long-term growth prospects in India on the back of limited competition at national level, acceleration of store presence (aims to open 40-50 stores in FY22), penetration into new cities, experimentation with newer formats, innovation and leveraging the rewards program. Lastly, while the near-term focus would continue to be on F&B along with exploration of adjacencies, over the longer term, TCPL has a bigger ambition to enter high growth/high margin categories for a broader FMCG play.

Simplifying international business: While we expect fairly subdued growth for the international business (1.9% sales CAGR over FY21-24E), TCPL is trying to simplify the business (USA, UK and Canada identified as key markets) by making strategic exits from certain markets over the last few years, showing clear focus on the core branded businesses. Already equipped with decent market shares, good margins (no loss-making business as on FY21) and good cash flow generation, we believe that TCPL’s topline (although will continue to drag on domestic top-line) and margin trajectory in the international business will be driven by focusing on growing & margin accretive categories like non-black teas, innovation in tea & coffee and cross-pollinating products.

Robust margin expansion potential: Normalization of input costs from FY21 & FY22 levels, pricing actions over the last 12 months till the end of Oct’21, mix improvement and synergy & scale benefits over the next few years will result in robust EBITDA margin expansion trajectory for TCPL (we estimate ~300bps improvement over FY21-24E).

Initiate with BUY

Sector: Consumer Staples

CMP: Rs744

Target Price: Rs870

Upside: 17%

Vishal Punmiya Research Analyst [email protected] +91-22-6273 8064

Videesha Sheth Research Associate [email protected] +91-22-6273 8188

Key Data

Current Shares O/S (mn) 921.0

Mkt Cap (Rsbn/US$bn) 684.7/9.2

52 Wk H / L (Rs) 889/554

Daily Vol. (3M NSE Avg.) 1,930,096

Shareholding (%) 2QFY22 1QFY22 4QFY21

Promoter 34.7 34.7 34.7

Public 65.3 65.3 65.3

Others - - -

One -Year Indexed Stock Performance

60

70

80

90

100

110

120

130

140

150

160

Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22

TATA CONSUMER PR Nifty 50

Price Performance (%)

1 M 3 M 6m

TCPL (4.0) (2.6) 23.6

Nifty Index 1.7 11.2 24.8

Source: Bloomberg

FY21 Annual Report

2QFY22 Investor Presentation

Y/E March (Rsmn) (Cons.) FY20 FY21 FY22E FY23E FY24E

Net sales 96,374 1,16,020 1,26,598 1,41,799 1,57,557 YoY growth (%) 32.9 20.4 9.1 12.0 11.1 EBITDA 12,922 15,438 18,165 21,996 25,751 EBITDA margin (%) 13.4 13.3 14.3 15.5 16.3 Adj. PAT 6,650 8,801 10,973 13,879 16,682 EPS 7.2 9.5 11.9 15.1 18.1 YoY change (%) 5.9 32.3 24.7 26.5 20.2 ROCE (%) 8.8 8.1 9.5 11.4 12.9 ROE (%) 6.3 6.2 7.5 9.1 10.4 ROIC (%) 10.2 9.3 11.2 14.1 16.9 P/E (x) 103.0 77.9 62.5 49.4 41.1 P/B (x) 5.0 4.7 4.6 4.4 4.2 EV/EBITDA (x) 52.3 42.8 36.0 29.3 24.6

Source: Company, Nirmal Bang Institutional Equities Research

3 January 2022

https://www.tataconsumer.com/sites/g/files/gfwrlq316/files/2021-06/TCPL%20Integrated%20Annual%20Report%20-%20FY2020-21.pdf

https://www.bergerpaints.com/resources/pdf/annual-report/ar-18-19.pdf

https://www.bergerpaints.com/resources/pdf/annual-report/ar-18-19.pdf

https://www.tataconsumer.com/sites/g/files/gfwrlq316/files/2021-10/Investor-Presentation-Q2-2021-2022.pdf


Tata Consumer Products Ltd. 2

Table of Content

A brief about Tata Consumer Products Ltd. (TCPL)..……....…….………….….….............................03

Bringing order to pan-India distribution..……....…………….…..........………..………….....................06

Runway for growth in domestic core businesses..……....………….………..….….............................09

Other growth opportunities in India ..……....…………….…..........................…….…….…….…….....17

Simplifying International business..……....…………….…..............................…….…….…………….22

Digital initiatives.……....…………….…..............................…….…….…….…….…….…….…….……27

Streamlining operations and driving synergies..……....…..…….……………….….............................28

Financial story in charts..……....…………….….....................…….…….…….…….…….……............29

Valuation and view..……....…………….…..............................…….…….…….…….…….…….……..35

Key risks..……....…………….…...............................…….…….…….…….…….…….…….…….…….37

Current shareholding..……....…………….….............…….…….…….…….…….…….…....................38

Board of directors and management & leadership..……....…………….….....................………….....39

Financials (Consolidated)..……....…………….….......…….…….…….…….…….…….......................42



A BRIEF ABOUT TATA CONSUMER PRODUCTS LTD. (TCPL)

TCPL is a consumer goods company, offering a portfolio of foods, beverages and retail, comprising marquee brands like Tata Tea, Tetley, Tata Salt, Sampann, Eight O’Clock Coffee, Himalayan Natural Mineral Water, Starbucks, etc. Over the years, the company has not just managed to grow organically, but has also not shied away from inorganic growth.

TCPL’s beverages portfolio comprises tea, coffee, water and ready-to-drink (RTD) beverages, whereas its foods portfolio encompasses salt, pulses, spices, ready-to-cook mixes, breakfast, snacks and mini meals. Out-of-home retail comprises premium cafes in partnership with Starbucks in India.

Exhibit 1: As evident from the historical trend, the company has not shied away from growing inorganically

1960s• Investment in Plantations in India

1980s• Domestic Branded play in tea

1990s• Acquisition of interest in coffee plantations

FY00• Acquisition of Tetley

FY06• Acquistion of Good Earth

FY07

• Acquisition of Eight O’Clock Coffee Company, USA

• Investment in teapigs brand

• Acquisition of Jemca

• Acquistion of stake in Joekels Tea Packers

FY08• Acquisition of Vitax

FY11• JV with Pepsico to form Nourishco

FY12• JV with Starbucks to form Tata Starbucks

FY15• Acquisition of the MAP brand

FY20• Acquisition of Consumer Product Business of Tata Chemicals Ltd.

FY20• Acquisition of branded tea bus. of Dhunseri Tea & Industries Ltd.

FY21• Acquisition of balance 50% stake of NourishCo from PepsiCo

FY21• Acquisition of Kottaram Agro Foods Pvt. Ltd. (Soulfull)

FY22• Acquisition of Tata Smartoodz (Tata Q)

DOMESTIC

DOMESTIC

DOMESTIC

DOMESTIC

DOMESTIC

INTERNATIONAL

INTERNATIONAL

INTERNATIONAL

INTERNATIONAL

INTERNATIONAL

DOMESTIC

DOMESTIC

DOMESTIC

DOMESTIC

DOMESTIC




In line with the Chairman’s ambition to develop another larger vertical for the Group (following Steel and Software), Tata Group has managed to embed the FMCG DNA in one company i.e., TCPL. Brief of the recent investments/divestments undertaken in the domestic market to broaden and focus on the F&B play:

1. Merger of Consumer Products business of Tata Chemicals: As a part of business reorganisation, the Board of the erstwhile Tata Global Beverages Ltd. (TGBL), in its meeting held on 15th May’19, had approved the Scheme of Merger of the Consumer Products business of Tata Chemicals Ltd. (TCL) with the Company in terms of a scheme of arrangement under Section 230-232 and other applicable provisions of the Companies Act, 2013. Eventually, the Scheme became effective after receipt of all requisite statutory and NCLT approvals, including shareholders’ approval on 7th Feb’20.

2. Acquisition of balance stake in NourishCo. Beverages Ltd. (NourishCo): In line with its strategy to build a larger presence in the Indian RTD Beverages segment, TCPL acquired 100% control in NourishCo w.e.f. 18th May’20, by purchasing 50% stake and transfer of rights of the Gluco Plus/Gluco+ brand, from the JV partner Pepsico at a consideration of Rs290mn.

3. Acquisition of Kottaram Agro Foods Pvt. Ltd.: With the intent to expand into On-the-Table/On-the-Go categories and to leverage the ‘Better for You’ proposition, TCPL acquired Kottaram Agro Foods Pvt. Ltd. (owner of erstwhile ‘Soulfull’ brand launched in 2013) in Feb’21 for a consideration of ~Rs1.6bn and future consideration linked to achievement of certain milestones. The company became a wholly-owned subsidiary of TCPL on completion of the acquisition, with the name being changed to Tata Consumer Soulfull Pvt. Ltd. Further, ‘Soulfull’ became ‘Tata Soulfull’ in 4QFY21 and the new logo was integrated into all brand touch points in 2QFY22.

4. Acquisition of Tata Q brand: In Nov’21, TCPL announced the purchase of 100% equity stake held by Tata Industries Limited (TIL) in Tata Smartfoodz Ltd. (TSFL) via Share Purchase Agreement (SPA), which is engaged in the business of manufacturing, distribution and marketing of ready-to-eat packaged food products under the ‘Tata Q’ brand in India. The all-cash acquisition was done for a consideration of Rs3.95bn (valuation based on asset replacement method – Total assets stood at Rs3.13bn as on 30th Sept, 2021 and includes manufacturing facility in Sri City, Andhra Pradesh).

5. Transfer of Tata Cha: TCPL also had tea-cafes under the brand name Tata Cha, but in Oct’21, the company decided to transition it to ‘Qmin Shops’ operated by a subsidiary of Indian Hotels Company Ltd.

Exhibit 2: Tata group has managed to bring all of the group’s FMCG consumer brands under one umbrella i.e., TCPL




The company also has presence in ~40 countries with US, UK and Canada being integral international geographies for the business operations. Over the years and as part of business review, the company has tried to identify the core businesses and has streamlined them in order to focus on the key markets. A recent example is the exit of its international foodservice businesses where the company divested foodservice operations in Australia (MAP out-of-home coffee) and the food service business in USA (membership interest in Empirical Group LLC and Southern Tea LLC) to concentrate more on the branded play in these markets.

Exhibit 3: Moved from being just a beverage company to an F&B company; Long term vision of TCPL is to enter into high-growth/high-margin FMCG categories


Exhibit 4: Overview of current company structure

Tata Consumer Products Ltd.

Standalone

India beverages (39.7%) & India Foods (21.0%)

Subsidiaries

Intl. Beverages - USA (14.5%), UK (10.9%), Canada (3.6%), Other

countries (0.9%)

Tata Coffee (57.48% stake) (9.7%)

NourishCo Beverages Ltd.

Tata Consumer Soulfull Pvt. Ltd.

Joint Venture

Tata Starbucks Pvt. Ltd. (50% JV)

Jeokels Tea Packers (Proprietary) Ltd.

(51.7% JV)

Tetley ACI (Bangladesh) Ltd.

(50% JV)

Associates

Amalgamated Plantation Pvt. Ltd.

(41.03% stake)

Kanan Devan Hill Plantation Pvt. Ltd.

(28.52% stake)

TRIL Construction Pvt. Ltd. (32.5% stake)


Note: Numbers in brackets under Standalone, International Beverages and Tata Coffee imply the % contribution to the net revenue



BRINGING ORDER TO PAN-INDIA DISTRIBUTION

At the start of FY21, the company had committed to double the direct reach in 12 months (which stood at 0.4-0.5mn at the end of FY20) and double the numeric reach in 3+ years (which stood at 2mn/2.5mn at the end of 2QFY20/FY20). As of 2QFY22, the company’s direct reach stood 1.1mn, thereby delivering (rather surpassing) its guidance whereas overall reach stood at 2.6mn.

The company intends to take its direct reach to 1.2-1.3mn outlets by the end of FY22 and ~2mn probably by Sept’22/Oct’22.

As TCPL moves further towards its target total reach of >4mn by FY24, most parts of the portfolio will stand to benefit.

Expansion in GT will lead to the Tata Sampann portfolio seeing major benefit, and improvement in outlet throughput.

In the sales & distribution system, consolidation was done in three phases, of which first two have been completed:

1. Elimination of the consignee agent layer

2. Single distributor point for entire portfolio

3. Improving rural distribution

Change in the distribution structure

A major component of the merger integration was the redesign of sales & distribution architecture and network in India. Prior to the change in distribution structure (following the merger of consumer products business of TCL with TGBL), both the Beverages and Foods businesses had a set of layers in the sales structure as well as the distribution structure.

Earlier, for Beverages, a consignee agent system used to be followed where the consignee was billed by the company, who used to then bill the stockist and the stockist used to bill the retailer. In the Foods business, a distributor would be billed and the distributor used to bill the stockist and the stockist to the retailer.

Following the merger, the company removed the extra layer by dealing directly with the stockist, leading to a flatter system, which is much more effective & efficient and has led to substantial enhancement of TCPL’s reach since integration.

Exhibit 5: The company has cut down an additional layer in its sales & distribution structure

Company Consignee Stockist Retailer

Company Distributor Stockist Retailer

Company Stockist Retailer

Prior distribution structure for Beverages

Prior distribution structure for Food

Current distribution structure for Beverages & Food




Consolidation of distributors

Further, post implementation of the above, distributors were trimmed from ~4,500 in FY21 (where a tea and a salt salesman would go together to sell the portfolio) to 1,500-1,600 distributors of scale by 2QFY22 (entire portfolio sold by one salesman). While the company rationalized its distributors, it added +30% ‘feet on street’ in the system. Surpassing the company’s guidance, the direct coverage was increased from 0.5mn outlets in FY20 to ~1.1mn outlets in 2QFY22 (company had guided for 1mn). Total reach increased from 2.5mn to 2.6mn outlets during the same period. The company intends to take its direct reach to 1.2-1.3mn outlets by the end of FY22 and 2mn probably by Sept’22/Oct’22. As TCPL moves further towards its target reach of +4mn by FY24, all parts of the portfolio will stand to benefit.

Focus now will be on rural distribution system

After focusing for a long time on urban centres, TCPL wants to increasingly focus on catering to the rural areas. As of FY21, the company’s rural reach comprised 3x the number of territory sales officers as of FY20 and >4,000 rural distributors as of 2QFY22. Going forward, the company will increase its distributor network by ~20% in rural areas, where it plans to promote existing affordable brands, and launch new ones.

Exhibit 6: Sales & distribution update as on FY21


Apart from expanding distribution and focusing beyond tea and salt, TCPL has also started a premium DSR (distributor sales representatives) program, where ~17,000 outlets are covered with additional sales people only focusing on the premium part of the portfolio and the new brands that are launched by the company. Examples of brands which are covered by DSRs include Sampann, Tetley, Coffee brands and Soulfull.

However, even with the current 2.6mn outlets, the reach is well below various FMCG peers, thereby indicating the significant headroom to expand. The company aims to narrow this gap with plans to increase its total reach to +4mn outlets by FY24.



Exhibit 7: TCPL’s distribution reach is way below FMCG peers

0.52.2 2.0 1.3 0.9 1.2

2.5 2.00.9 1.4 0.9 1.1

4.3

5.5

7.0 6.9

4.5

6.0

8.0

6.05.3 5.0

2.8 2.6

10.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

BajCon BRIT CLGT DABUR HMN GCPL HUL ITC MRCO NEST Jyothy TCPL Universe

Indirect Direct Total reach

(mn)


In case of GT, Tata Sampann portfolio will see a major benefit, and there will also be an assortment benefit where increased assortment of TCPL’s portfolio will interest retailers.

Apart from focusing on numeric increase in distribution, the company is also focusing on technology to ensure productivity of sales force is harnessed to improve the topline growth rate. Hence, after distribution expansion, productivity (outlet throughput) will be a key factor driving sustainable growth for the company.



RUNWAY FOR GROWTH IN DOMESTIC CORE BUSINESSES

TCPL’s core domestic business (primarily tea + salt) is likely to benefit from:

Further augmenting market leadership position

Premiumization (leveraging health & wellness proposition)

Widening distribution

The growth of relatively newer addition to domestic core portfolio, i.e., Tata Sampann (pulses + spices), will be driven by:

Shift from unbranded to branded consumption

Widening distribution footprint

Portfolio expansion

TEA (INDIA BEVERAGES)

The packaged tea market in India is estimated at Rs260bn, with unbranded being ~40% of the overall market in value terms. Of the branded segment, TCPL is the leader in terms of volume market share, commanding 20.4% market share and is a strong second player in terms of value, commanding ~21% market share (HUL remains the value leader at ~23% market share). Both these national players account for ~45% of the market with distant competitors like Wagh Bakri commanding ~9% market share, followed by regional players who command low-single-digit to negligible market share.

Exhibit 8: Branded segment is ~60% of overall tea market Exhibit 9: Value market share: TCPL is the second largest player in the branded tea segment whereas it is first in terms of volume

Branded ~60%

Unbranded~40%

TCPL, 21%

HUL, 23%

Wagh Bakri9%Amar 2.30%

Girnar 1%

Others 44%

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 10: TCPL’s offerings in the tea category are wider

Type of offering TCPL Rs/kg HUL Rs/kg Wagh Bakri Rs/kg

Premium Tata Tea Chakra Gold 700 3 Roses 700

Tata Tea Gold 625 Taj Mahal 610

Mid-segment

Tata Tea Gold Care 590 Red Label 570 Wagh Bakri Premium Leaf 520

Tata Tea TeaVeda 510

Wagh Bakri Strong Dust 440

Tata Tea Gemini 510

Wagh Bakri Strong Leaf 400

Tata Tea Premium 470 Wagh Bakri Good Morning 660

Economy Tata Tea Kanan Devan Classic 292 Taaza 300 Navchetan Danedar 310

Tata Tea Agni 260

Source: Company & e-comm websites, Nirmal Bang Institutional Equities Research

While volume in the recent quarters has been low on the back of high growth numbers of last year, volume in the domestic tea business can record high-single-digit growth over the long-term on the back of:

Market share opportunity: Given that approximately half the tea industry in India is still in loose format, there is enough headroom for shift to the organized packaged format. Being one of the only two



dominating national brands, TCPL will be a large beneficiary of this shift. During the peak of the pandemic, we saw both the leading players gain market share from unorganized as well as local players on the back of lack of availability of the latter and consumer preference for branded packaged goods. While with normalisation and high inflation, there is a minor reversal in the trend towards local players, but the organized players are holding their own and remain focused on gaining market share from loose & unorganized as well as smaller organized players. During FY21, the company strengthened its leadership position in the tea market by improving its volume market share to 20.4% (0.6%+ pts YoY) and value market share to 21% (1%+ pts YoY) on the back of significant increase in both the range as well as depth of the business’ outlet reach.

Exhibit 11: Volume growth of India Beverages expected to be relatively low in FY22 due to high base

8

9 7 12 9 8 8 7 5 7 4 12 10 23 12 3 2

0

5

10

15

20

25

1QF

Y19

2QF

Y19

3QF

Y19

4QF

Y19

FY

19

1QF

Y20

2QF

Y20

3QF

Y20

4QF

Y20

FY

20

1QF

Y21

2QF

Y21

3QF

Y21

4QF

Y21

FY

21

1QF

Y22

2QF

Y22

(%)


Scope for premiumization: Driven by perceived health & wellness benefits, emerging categories like green tea/specialty tea (although ~3% of the branded space) including tea bags are growing at a faster rate of 12%-13% vis-a-vis traditional tea. TCPL’s portfolio includes enough number of brands catering to health & wellness proposition and is supported by the company’s increased focus on new launches & innovations (the company has launched 15+ tea products since FY16). In FY21, it launched a range of immunity-building/herbal teas (Tata Tea Tulsi Green, Tetley Immune, Tata Tea Gold Care) to tap the elevated consumer demand for health-focused products. To strengthen its presence in the Super Premium Tea segment through the direct-to-consumer route, TCPL launched Tata Tea 1868, which is an exclusive range of luxury teas from across India. Further, if the tea market shows signs of fast shift towards non-black tea categories, TCPL can leverage its global portfolio of brands.

Exhibit 12: Innovation in tea over the recent years

India FY16 FY17 FY18 FY19 FY20 FY21 FY22TD

Tea Tata Tea Gold

Tata Tea Elaichi; Tata Tea Select;

Tata Tea Teaveda

Tata Tea Masala Chai

Relaunch of Tata Tea; Chakra Gold Elaichi; Kanan Devan Duet; Chakra Gold Active+

Tata Tea Quick chai

Tata Tea Gold Care Tata Tea 1868;

Tata Tea Chakra Gold Care

Green Tea/ Specialty Tea

Tetley Lemon Long Leaf Green Tea

Tetley Super Green Tea

-

- - Tata Tea Tulsi;

Tetley Immune Green Tea; Tetley Mango Green Tea

-


Widening distribution: TCPL’s numeric distribution rate for the tea category, moved from 34.5% to 39.8% between FY20 and FY21. Numeric distribution increased 15% in FY21. With the company aiming for increasing its overall reach to +4mn outlets by the end of FY24, there is decent scope for the tea portfolio to grow.



SALT (INDIA FOODS)

The Indian salt market is estimated at Rs60-70bn with unorganised players capturing ~12% of the category in terms of volume. This is in contrast to the rest of the categories the company operates in, where the presence of unorganized players is significant. Hence, the growth drivers for branded play in salt, include increasing awareness about better product quality, micronutrient delivery, visible purity & iodine content, penetrating the Bottom-of-Pyramid (BoP) segment and driving NPDs.

TCPL is present in the category with brands:

Tata Salt (vacuum evaporated salt sold nationally) I-Shakti Salt (lower priced solar evaporated salt primarily sold in South) and Other value added/premium salt brand extensions, including Tata Salt Lite, Rock Salt and Black Salt

Exhibit 13: Snapshot of Indian branded salt market


Exhibit 14: TCPL’s (TCL till FY19) salt revenue has grown ~14% with ~7% volume growth in Tata Salt over the last 10 years

0

200

400

600

800

1,000

1,200

0

5,000

10,000

15,000

20,000

25,000

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Total Salt revenue (Rsmn) Tata Salt volume (mnkg)

(Rsmn) (mn kg)




The company has managed to clock double-digit growth over the last 10 years through brand building and enhanced retail reach. We expect TCPL’s salt portfolio to grow in double-digits during FY21-24E and high single digit over the long-term on the back of:

Market share gain opportunity: Consumers are upgrading from loose & unbranded salt to packaged & branded iodised salt, and from local brands to regional & national brands. Tata Salt is #1 in terms of market share (37-38% of the overall branded market and ~60% of the national branded salt segment) and is probably 5-6x of the next largest competitor and even all the next four put together (which command mid-single digit market share) do not total up to the share that Tata Salt commands. There is a large tail below the large organized players, comprising largely local and unorganized players, and hence opportunity for market share expansion remains. Further, as visible from exhibit 13, Tata Salt largely plays in the premium segment. While the company caters to the BoP space through the i-Shakti brand, the brand is primarily present in South India. Hence given that salt is a large market and company has relatively lower presence in BoP, it can increase its volumes by expanding its presence in the same. However, it will need to keep dilution of profitability in mind.

Premiumization opportunity: To cater to the growing trend of health & wellness with consumers making conscious choices by selecting better-for-you options, the company has introduced lower sodium alternatives like Tata Salt Lite, iron & iodine fortified salt like Tata Salt Plus and mineral-rich rock salt & black salt in the past few years. Specialty salts like rock salt and black salt have also been increasing their presence in modern format stores. Premium portfolio’s value contribution improved to 3.5% in FY21 from 1.8% in FY20.

Widening distribution: The portfolio saw 11% increase in numeric distribution in FY21. The company’s focus on direct as well as total distribution expansion (wanting to increase reach to +4mn outlets by the end of FY24) and increasing rural coverage will also result in decent scope of expanding the salt portfolio.

Exhibit 15: Increase in Tata salt’s retail reach can drive further volume growth

1.7 1.7 1.8 1.9 2.12.3

2.6

>4mn

0.0

1.0

2.0

3.0

4.0

5.0

FY16 FY17 FY18 FY19 FY20 FY21 TCPL'stotal reach

as on1HFY22

TCPL'starget

reach as onFY24

(mn)


No constraint visible on the supply side: TCPL’s supply partner, TCL has the largest manufacturing facility for producing vacuum evaporated salt in India. Even from the supply side, TCL has been expanding its production capacity to meet capacity needs for growing demand in line with TCPL’s growth ambitions.

TATA SAMPANN – Pulses & Spices (INDIA FOODS)

TCPL aspires to be a large FMCG company and as a first step in that direction it wants to build a large F&B company. In the F&B space, food is likely to be a bigger growth driver going forward, with Tata Sampann being the second key pillar of growth following tea & salt.

Initially, TCL had entered into the pulses segment in FY11 (pilot launch in the states of Tamil Nadu, Maharashtra and Delhi) under the brand I-Shakti, which was an extension of its salt brand I-Shakti (launched



in FY08) in order to integrate the strength of the company’s presence in both farm as well as consumer-facing ends of the business.

During FY15, TCL test launched spices in five cities of Punjab with a product portfolio of seven blended and three pure spice variants under the Tata Sampann brand. Later, it was also launched in Haryana and Himachal Pradesh and eventually was rolled out in other states too. The launch achieved early action standard of a 5% market share within six months of the launch. Its superior product quality and region-specific blends became the USP for the products.

During FY16, Tata I-Shakti was successfully re-launched as Tata Sampann (the I-shakti brand was retained only for salt).

Exhibit 16: Portfolio’s journey from I-Shakti to Sampann


Brief overview of the pulses and spices segments that Tata Sampann operates in:

Pulses: India is the largest producer (~25% of global production) and consumer (27% of global consumption) of pulses. The total Pulses & Derivatives industry was estimated at ~Rs1,500bn in FY20 with <5% of the segment being branded (as per Technopak, the branded market makes up 6% as on FY20 and is likely to be around 7% of total market in FY21). The Besan market is estimated to be ~Rs230bn, again dominated by unbranded segment. Tata Sampann is the first national branded player in this category. The low penetration is primarily led by a host of factors, including low perceived value addition by packaged players (leading to consumers unwilling to pay price premium) and low consumer concern regarding adulteration in unbranded pulses. However, the trend has changed in the last few years and has been amplified since the pandemic, fuelled by consumers’ preference for hygiene, better quality packaged products, launch of differentiated products (such as Tata Sampann Unpolished Dals, Tata Sampann low oil absorb besan, an organic range of pulses) and growth in the number of organised players entering the category (enabling expansion of base).

While national players like Tata with its brand Sampann and Adani with its brand Fortune are new entrants, most other brands are regionally focussed, thereby making the category fragmented. Mahindra Agri Solutions, a wholly-owned subsidiary of M&M, had also launched branded pulses under the NuPro brand in FY16, but its distribution remains limited to Mumbai. The regional players benefit by limiting their portfolio to the types of pulses regionally preferred and a well-penetrated distribution network in their regions.



Exhibit 17: Branded pulses market to grow at a faster rate (>2x pace) than overall market….

Exhibit 18: … leading to an improved mix of 7% by FY25 from 6% in FY20

60 85 120

1,280

1,500

1,770

0

300

600

900

1,200

1,500

1,800

FY15 FY20 FY25

Branded (Rsbn) Pulses retail market in India (Rsbn)

7.2%

5-yr CAGR

(Rsbn)

7.1%

3.2%3.4%

5 6 7

95 94 93

0

20

40

60

80

100

FY15 FY20 FY25P

Branded (%) Unbranded (%)

(%)

Source: Technopak, Nirmal Bang Institutional Equities Research Source: Technopak, Nirmal Bang Institutional Equities Research

Spices: India is the world’s largest producer, consumer and exporter of spices and accounts for almost half of the global spice trade. The total Indian spices industry is worth ~Rs600bn, with the branded spices industry estimated to be Rs170-180bn in FY20. The spices market in India is highly regional and segmented, with the top 5 players accounting for ~45% of the branded space. The branded segment is growing at a CAGR of 15-16% and as per Avendus, it can be a Rs500bn opportunity by 2025.

Straight/Pure Spices form ~80% of the segment (with a high-competitive intensity from unorganised players), while blended spices are mainly branded with consumers choosing to be brand loyal. However, there is an increasing demand for branded products, with consumers going for improved quality products in straight/pure spices (with better quality of raw materials used) and increasing adoption of blended spices in the kitchen (higher convenience and consistency of taste).

Exhibit 19: Regional preferences drive loyalty & stickiness

Source: Avendus, Nirmal Bang Institutional Equities Research



Exhibit 20: The spices market will evolve as need for convenience increases further

Source: Avendus, Nirmal Bang Institutional Equities Research

Drivers for Tata Sampann pulses & spices portfolio:

Unbranded to branded conversion: The medium to long term growth opportunity for the Sampann brand could be significant considering the category structure is highly skewed towards non-branded players. With <5% of pulses and ~30% of spices market being branded, the scope for TCPL’s portfolio to grow is significant and sustainable. Further, the addressable market for pulses at Rs1,500bn and spices at Rs600bn is much larger than the company’s core businesses (tea and salt). Hence, Tata Sampann being the first national branded player in the pulses category stands to benefit from the shift in consumer preference for quality branded packaged products. While in the spices portfolio, the company faces strong competition from regional players who tend to lead in their geographies, TCPL’s portfolio stands to benefit from consumer demand for better quality (leveraging the Tata legacy), purity of spices and increase in adoption of blended spices. Additionally, the company is creating and offering products catering to regional tastes. The company's value proposition for spices includes unique packaging in multiple sachets (for maintaining the freshness) and guaranteeing a certain percentage of active ingredients like curcumin and capsaicin.

Significant headroom to grow the distribution footprint: Tata Sampann’s portfolio of pulses is primarily present in E-commerce (E-comm) & Modern Trade (MT) with <100,000 outlet presence in General Trade (GT) channel. Even in case of spices, the brand’s presence is mainly in E-comm & MT and the company has recently started building presence in GT. Given the restricted offline reach, we can expect disproportionate growth for the portfolio as the company begins unlocking presence in traditional channel.

Portfolio expansion: The company has continuously been adding products to its basket over time (15+ products launched since FY16). Along with expansion of distribution footprint, there is scope for the brand to expand its offerings to the existing range of pulses, spices, gram flour and poha and is very much on the company's growth agenda.

Exhibit 21: Innovation in Tata Sampann (staples) portfolio

India FY16 FY17 FY18 FY20 FY21 FY22TD

Tata Sampann (staples)

Low-absorb Besan; Tata Sampann Spices (launched in 3 states)

Tata Sampann Spices (extended to 16

states)

New variants added in the spices portfolio

(Sambhar Masala, Pav Bhaji Masala and Chat

Masala)

Poha; Organic Pulses;

Sattu

Thin Poha

Range of Dal Tadka Masalas




Margin drivers for the portfolio: Pulses make up for majority share of Tata Sampann’s revenue. This is followed by spices and marginal contribution from RTC portfolio. While the overall pulses category offers 15-20% gross margins with lower EBITDA margins, the spices category generate gross of 35-40% (leaders generate 45%+ gross margins) and EBITDA margin of 15-18% (leaders generate 35%+ EBITDA margins). Hence going ahead, improvement in portfolio margin will be driven by improvement in mix of spices and operating leverage from increase in scale.

Exhibit 22: As evident, prices for Tata Sampann pulses are at a premium to peers…

Pulses

Rs/kg Tata Sampann Adani Fortune ITC

Unpolished Masoor Dal 176 110 -

Unpolished Toor Dal 179 145 -

Unpolished Chana Dal 125 130 -

Organic Toor Dal 240 - 230

Organic Chana Dal 200 - 200

Organic Moong Dal 266 - 260

Organic Split Udad - - 265


Exhibit 23: ….so are spices

Spices

Rs/100gms Tata Sampann Everest ITC MDH

Single/Pure

Turmeric 34 31 33 30

Chilli 46 46 41 42

Kasuri Methi (herb) 90 84 - 84

Coriander 33 27 31 31

Blended

Sambhar 75 63 58 64

Pav Bhaji 75 60 70 65

Garam Masala 85 80 80 75

Paneer Masala 85 78 80 82

Punjabi Chole Masala 70 67 66 62




OTHER GROWTH OPPORTUNITIES IN INDIA

In the medium-term aspiration to build a large F&B company, TCPL will build on its new legs of growth i.e., RTC/RTE/snacking and beverages (ex-tea) offerings

Expansion of the distribution footprint and portfolio offerings will drive growth of the RTC/RTE portfolio (Tata Sampann, Tata Soulfull, Tata Q) and beverages ex-tea (Coffee, NourishCo)

Opportunity in the export market

Tata Sampann, Tata Soulfull, Tata Q (INDIA FOODS)

As stated earlier, TCPL aspires to be a large FMCG company and as a first step in that direction it wants to build a large F&B company. In the F&B space, food is likely to be a bigger growth driver, with Tata Sampann being the second key pillar of growth following tea + salt. Further, as evident from the recent acquisitions (NourishCo, Soulfull, Tata Q) and in-line with the company’s strategy, inorganic moves will remain the key enablers of the foods portfolio.

Tata Sampann Ready-to-cook offerings

Snacks/Ready-to-Cook is an Rs810bn segment with a high share of branded play (Ready-to-Cook is all-branded in comparison to Snacks). Growth is being driven by more players entering the segment and offering consumers different tastes, including healthier food and convenience.

RTE foods is dominated by branded players with >90% of share. RTE products are also export-oriented as there is greater demand for such products among NRIs. North India is the leading market for RTC products followed by the West and South India. Product segments like gravy & curry mixes, dessert mixes and breakfast mixes dominate the RTC market. With innovation as the central focus, the RTC market has seen the entry of companies such as Jubilant FoodWorks, Veeba Foods, Adani Wilmar, Amul, etc. Tata Sampann’s RTC offerings include nutri-mixes which offer benefits on wellness along with convenience. such as Supergrain nutrimixes, Dhokla nutrimix, Masala Daliya Khichdi mix etc.

Tata Soulfull – Multi occasion & multi category opportunity in a Rs200bn market

With the intent to expand into On-the-Table/On-the-Go categories and to leverage the ‘Better for You’ proposition, TCPL acquired Kottaram Agro Foods Pvt. Ltd. (owner of the erstwhile ‘Soulfull’ brand launched in 2013) in Feb’21 for a consideration of ~Rs1.6bn and future consideration linked to achievement of certain milestones. The company became a wholly-owned subsidiary of TCPL on completion of acquisition, with the name being changed to Tata Consumer Soulfull Pvt. Ltd. Further, ‘Soulfull’ became ‘Tata Soulfull’ in 4QFY21 with the new logo being integrated into all brand touch points in 2QFY22.

Exhibit 24: Mega trends in food are powering the convenience & snacking space with traditional & new players leveraging them




Exhibit 25: Total addressable market (TAM) for Soulfull remains fairly large at Rs200bn

11-124-5

65-75

80-90

22-24

0

10

20

30

40

50

60

70

80

90

Breakfast Cereals Nuts & Trail mix Healthy Cracker,Digestives, Thins

Healthy cookies Healthy Bakes

(Rsbn)


Tata Q

In Nov’21, TCPL announced the purchase of 100% equity stake held by Tata Industries in Tata Smartfoodz Ltd. (TSFL), which is engaged in the business of manufacturing, distribution and marketing of ready-to-eat (RTE) packaged food products under the Tata Q brand in India. The all-cash acquisition was done for a consideration of Rs3.95bn (valuation based on asset replacement method – Total assets stood at Rs3.13bn as on 30th Sept, 2021 and includes manufacturing facility in Sri City, Andhra Pradesh).

TSFL commenced operations in 2019 and within a short span of time has established itself as the #2 player (MTR continues to remain #1) in the RTE market in India. It has a manufacturing facility in Sri City, Andhra Pradesh. A range of innovative and differentiated products (pasta, noodles, biryani and combo meals) are offered under the brand name Tata Q in India using MATS technology, which helps retain taste, texture and nutrients within an ambient supply chain. The product portfolio caters to consumers looking for tasty, convenient and wholesome on-the-go meals. In India, the category is expected to grow at a significant pace, benefitting from demographic tailwinds such as growing urbanization, high disposable incomes and nuclear families looking for convenience, nutrition and hygienic food on the go. Being part of TCPL will enable Tata Q to strengthen market presence and scale up the business by leveraging its strength in modern trade and e-commerce channels in India and also its global presence to target key International markets for RTE exports. It will also help the company to augment its innovation pipeline and unlock synergies across businesses.

Drivers for overall RTC/RTE/snacking portfolio:

Opportunity of a larger TAM: While the company was present in the RTC space, acquisition of Soulfull and Tata Q has enabled TCPL to enter and expand its presence in RTE space. Addition of Soulfull has given TCPL the opportunity to expand its product portfolio and build a platform with differentiated offerings in the Health & Wellness space, which is estimated to have a market size of Rs200bn. Further, it gives the company an opportunity to participate across multiple consumption occasions (RTE breakfast, snacking, mini-meals) and multiple fast-growing categories such as cereals, mini meals, healthy snacks, growing at 15%+) and to leverage its “better for you” positioning. The brands, especially Tata Q, also have an opportunity overseas where TCPL can leverage its good presence and relationship with the trade in markets like US, UK, Canada, Australia, etc. The company has already started exporting some of Tata Sampann and Soulfull products to markets like Dubai and UK. While it is still at an early stage, the company will gradually scale it up export legs for some of its RTC/RTE portfolio.

Significant headroom to grow the distribution footprint: Currently TCPL’s RTC/RTE/snacking brands have a low GT presence. At the time of acquisition, Soulfull was present in 15,000 outlets, which quadrupled by 2QFY22 compared to TCPL’s total numeric reach of ~2.6mn outlets. Hence, there is an opportunity for disproportionate growth for the Soulfull portfolio as distribution expands. While the company has a very strong product pipeline, it sees a large opportunity to grow just through distribution expansion first, and will then focus on product expansion.



Exhibit 26: Innovation in Tata Sampann RTC/RTE portfolio

India FY17 FY18 FY19 FY20 FY21 FY22TD

Tata Sampann (RTC/RTE)

Pakoda Mix

Multigrain Khichdi Mix; Multi-Grain Chilla Mix; Moong Dal Chilla Mix’

Natural, preservative free chutneys in 3 variants – Spicy Tomato. Chinese

Chutney & Tamarind Date;

My Gudness Dalicious Snacks

New variants of Chutney,

New range of nutrimixes – Supergrain Ragi mixes (Dosa and Idli), Protein

rich Khaman Dhokla and Masala Dhaliya Khichdi

mix;

Dry fruits


Margin drivers for the portfolio: Margin profile for premixes and Soulfull portfolio is better than the margin generated by overall foods business. Hence as these new businesses scale, it will aid in improving the margin profile of the overall foods business.

Exhibit 27: Margin profile of global breakfast players is superior

Company Revenue growth (%) Gross margin (%) EBITDA margin (%)

FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21

Kellogg Company (Dec ending; 2016-2020) *1

-4.4 -0.6 5.4 0.2 1.4 40.0 38.1 35.6 33.7 34.4 21.9 16.2 15.9 17.5 17.6

General Mills Inc. (May ending) *2 -5.7 0.8 7.1 4.5 2.8 36.1 34.5 34.4 35.2 34.8 22.0 20.8 20.6 21.5 21.5

Post Holdings Inc. (Sept ending) *3 4.0 19.7 -9.2 0.3 9.3 30.1 29.6 31.5 31.4 29.1 18.2 19.0 20.5 19.4 19.4

Source: Bloomberg, Nirmal Bang Institutional Equities Research Note: *1 Product portfolio includes cereal, snacks, frozen food, noodles & others *2 Product portfolio includes cereal, meals & baking, snacks, yogurt, petcare *3 Product portfolio includes cereal, foodservice, refrigerated retail products and active nutrition

In the foods business, salt, including premium salt and Sampann are the focus areas. We believe that Tata Salt’s success can be replicated to other food businesses, but distribution and innovation are key to growth. While the company will focus on scaling up newer businesses like Tata Soulfull, Tata Q, their contribution will remain small to the overall food portfolio.

COFFEE (INDIA BEVERAGES)

Given the low base, India’s coffee market is growing at 10-15% in terms of volume compared to the global market growth of 2.5-3%. The coffee segment in India is roughly worth Rs2.5-3bn, with instant coffee holding the largest pie of the market. Whole beans, roast & ground coffee etc. comprise of a miniscule share of the market

TCPL’s is present in the instant coffee market in India through Tata Coffee Grand, which was launched in Nov’15. The company has been able to gain low to mid-single digit market share over the past few years. To strengthen its presence in the Super Premium coffee segment through the direct-to-consumer route and to cater to the consumer who is more in tune with the international trends, TCPL launched Sonnets by Tata Coffee (consumer looking for specific origin & micro lots) and Eight o’clock (consumer looking for a premium coffee from the international space) in 1HFY22 and with that, the domestic coffee portfolio now has three brands. The company has recently piloted Tata Coffee Quick Filter which is an instant filter coffee in powdered format, in one of the markets.

Exhibit 28: Innovation in coffee

India FY16 FY17 FY20 FY22TD

Coffee Tata Coffee Grand Tata Coffee Grand HTS; Tata Coffee Grand R&G

Tata Coffee Grand in new jar design.

Eight o’clock; Sonnets;

Tata Coffee Quick Filter




We believe that with Tata Coffee’s heritage & origins, along with the Tata brand equity, and ‘flavour locking’ technology TCPL can make a decent dent in the coffee category. While Tata Coffee Grand has a low to mid-single digit share in the instant coffee market currently, the company believes that it should be able to get to a high single digit to low double-digit market share over the medium term on the back of improved execution in distribution, above-the-line (ATL) spends and innovation pipeline. Further, while both the super-premium brands are present in the online space only, the company may gradually expand into the offline space if the brands gain requisite traction.

LIQUID BEVERAGES - NourishCo (INDIA BEVERAGES)

Over the last decade, NourishCo. Beverages Ltd. (NourishCo), TCPL’s now wholly-owned subsidiary has focused on building brands in the healthy hydration space. The portfolio includes Himalayan mineral water, Tata Gluco Plus (energizing, glucose-based flavoured drink), Tata Water Plus (India’s first nutrient water), and younger brands like Tata Fruski and Tata Gluco Plus Jelly.

In line with its strategy to build a larger presence in the Indian RTD Beverages segment, TCPL acquired 100% control in NourishCo w.e.f. 18th May’20 by purchasing 50% stake and transfer of rights over the “Gluco Plus/Gluco+” brands from the JV partner Pepsico at a consideration of Rs290mn. The underlying reason why TCPL took over the business was - under the JV, the business was only operating in ~25% of the geographies in the country. Given the regions where it was operating, it enjoyed a very strong franchise, TCPL believed that it could expand the geographical reach with a stronger go-to-market (GTM) strategy for the existing products, besides adding new products. Following the acquisition, the company transitioned Himalayan from 3P (outsourced through Varun Beverages) to a company-owned distribution in 2QFY21. The transition yielded results ahead of expectations and resulted in 76% expansion in the brand’s retail footprint. Even Tata Water Plus saw significant volume expansion in FY21, albeit on a small base. Further during FY21, the company commissioned two new plants for Tata Water Plus, ahead of new market entries. Going forward, the company’s distribution expansion is expected to be a significant enabler for driving profitable growth for the water brands, resulting in a notable market share in the Rs180bn Indian packaged water market.

The business re-launched Tata Fruski in micro markets in Andhra Pradesh and Telangana (Hyderabad and Vizag) towards the end of FY21 with three Indianized street drink offerings: Mango Masti, Lemon Masala and Jeera Masala. Following a successful pilot, the company has started further expansion. The most recent launch Tata Gluco Plus jelly launched in 1QFY22 has also got off to a strong start.

The portfolio is also likely to benefit from macro tailwinds, including low per capital consumption, shift in consumer preference from carbonated beverages (which forms majority chunk of the Rs500bn non-alcoholic beverage market) to non-carbonated beverages, growing consumer preference for healthier alternatives etc.

Exhibit 29: The company has launched 5+ products in liquid beverages portfolio since FY18

India FY18 FY19 FY20 FY21 FY22TD

Liquid beverages

Himalayan Orchard Pure (flavoured

water); Tata Tea Fruski

Premium Himalayan glass bottle in both still and sparkling versions,

Reformulated Tata Fruski in

new bottle design

Tata Fruski was launched in Feb’2021 in South India with 3

new products- Mast Mango, Lemon Masala, Jeera Masala, in

2 SKUs

Tata Gluco Plus Jelly drink


In FY21, NourishCo contributed ~2% to TCPL’s consolidated branded revenue. Over time, the portfolio can reach mid-single digit contribution if geographic expansion, capacity expansion and portfolio expansion are executed well.



STARBUCKS

In FY12, TCPL announced a joint venture with Starbucks Coffee for commissioning Starbucks outlets (under COCO model) across India under the brand name Starbucks Coffee - A Tata Alliance. The brand came to India at a time when the market was still being created and has been doing well. While Café Coffee Day did a commendable job in bringing the coffee shop/café culture in India, the brand’s operations have suffered in the last few years, in terms of loss of sites, customers and brand reputation, and Starbucks could eventually become a dominant player in the growing Indian café market.

India is one of Starbucks' top five fastest growing markets globally. As of date, the company has 240-250 Starbucks outlets in 20 cities (233 outlets in 19 cities as on 1HFY22). Since FY19, the company has accelerated its store openings by adding 30+ stores each year. Starbucks intends to accelerate its India expansion with smaller stores and is willing to experiment with drive-through formats as well. Even for FY22, the company aims to open 40-50 stores. Hence, going ahead, key drivers of growth would be (i) store expansion in newer cities (ii) increased penetration in existing cities with smaller stores (iii) newer format

stores like highway & drive thru (iv) innovation (v) leveraging the rewards & loyalty programme - My

Starbucks Rewards (customer base witnessed a growth of 18% in FY21), which offers upgrades, customisation, free drinks and snacks to regular spenders, and on their birthdays, thereby increasing occasions & footprint and (vi) building on its ‘third place’ experience.

Exhibit 30: Starbucks continued to scale up its footprint despite operations being impacted in FY21 due to covid

Exhibit 31: ADS & Rev/store were impacted in FY21, but will recover going ahead

43

70 8091

116

146

185

221

0

50

100

150

200

250

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

0

1,000

2,000

3,000

4,000

5,000

6,000

Revenue Stores

(Rsmn) (Rs)

0

20,000

40,000

60,000

80,000

1,00,000

15.0

20.0

25.0

30.0

35.0

40.0

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Revenue per store (LHS) ADS (RHS)

(Rsmn) (Rs)

Source: MCA, Company, Nirmal Bang Institutional Equities Research Source: MCA, Company, Nirmal Bang Institutional Equities Research

The JV attained EBITDA breakeven in FY18. However excluding the royalty payment which is payable to both the JV partners, the company has attained profitability at the EBITDA level in all years since FY18 (implementation of INDAS 116 FY20 onwards has a positive impact on reported EBITDA). Similar to other QSR companies, profitability was impacted in FY21. As the brand gains further scale, operating leverage and additional sales from delivery will drive margin improvement

Exhibit 32: EBITDA & EBITDA margin will improve with scale

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

-600

-400

-200

0

200

400

600

800

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

EBITDA EBITDA margin

(Rsbn) (%)

Source: MCA, Nirmal Bang Institutional Equities Research

Note: Post INDAS 116 EBITDA FY20 onwards



SIMPLIFYING INTERNATIONAL BUSINESS

TCPL’s international businesses are stable with decent market shares, strong margins and good cash flow generation.

The company started an exercise a few years back, to simplify the international business by revisiting its international portfolio at regular intervals where the company divested stake in non-core businesses to enable greater focus on core branded businesses. Examples include exiting China business, restructuring efforts in Russia, exiting the Czech market. In FY21, the company exited its foodservices operations in Australia and US. As on FY21, the company had no loss-making international businesses in its portfolio.

We believe that TCPL’s topline and margin trajectory in the international business will be driven by focusing on growing categories like non-black teas (which are also margin accretive), innovation in tea & coffee and cross-pollinating products.

We estimate a subdued 1.9% sales CAGR over FY21-24E for TCPL’s international business, driven by 2.1% growth in US coffee and 1.7% growth in other international tea businesses.

TCPL operates in international geographies with offerings comprising black tea, green tea, flavoured tea, herbal tea, coffee and liquid beverages (RTD, energy drinks, etc.) through brands like Tetley, teapigs, Tata Tea, Good Earth, and Eight O’Clock. The company has three key international markets – USA, UK and Canada – all three of which are developed markets for the key categories, thereby depicting slow growth. With an evident shift of consumer preference from black tea to non-black tea in the developed countries (and instant coffee to coffee pods), TCPL has realigned its offerings with innovation & launches since former portfolio had a higher weightage of black teas.

Exhibit 33: Historical Investments/Divestments in international business – US, UK and Canada identified as key markets

FY18• Sale of Russian subsidiaries - Sunty LLC and Teatrade LLC

FY18• Divestment of stake in Estate Management Services Pvt. Ltd.

FY18• Divestment of stake in Zhejiang Tata Tea Extractions Ltd.

FY19• Sale of Tata Global Beverages Czech Republic

FY21• Disposal of Empirical Group LLC and Southern Tea LLC

FY21• Disposal of coffee business of Earth Rules Pty Ltd. AUSTRALIA

CHINA

CZECH

USA

RUSSIA

SRI LANKA


Key trends in global tea category:

As per Euromonitor estimates, Global Hot Tea category is a US$45bn industry.

Black/Everyday Black Tea forms the largest category sub-segment globally followed by Non-Black segments (Green, Fruit & Herbal, Decaf, Specialty, Cold Infusions etc).

During the pandemic, there was an increase in at-home consumption, led by pantry loading. This translated into volume growth in the retail segment, including in Everyday Black, which is in contrast to the declining trend seen in the last few years. Out-of-Home and Institutional channels witnessed significant drop in volume.

Health & Wellness remains one of the key focus areas in the industry. During the pandemic, there was sharper focus on functionality, such as immunity-improving ingredients (turmeric, moringa, herbals, etc.), owing to which even TCPL saw good response to Super Teas.



E-commerce recorded significant growth with acceleration fuelled by lockdowns and consumers’ preference for the safety of purchasing online in comparison to maintaining social distance in physical stores.

International markets - US, UK and Canada are now seeing a return to pre-covid demand trends.

Key trends in global coffee category:

Retail Hot Coffee is ~2x the size of tea. The coffee market is also growing at a faster pace than the tea

category across geographies. Further, there is increasing consolidation in the coffee market as players are looking at driving synergies with larger scale.

USA is the largest coffee market, estimated at ~US$11bn and is leading the category growth. Coffee has four sub-segments: Roast & Ground, Beans, Pods and Instant Coffee. Affordable ground

coffee and instant coffee formats are more prevalent in tea drinking markets like Asia, Africa, UK and the Middle East while Roast & Ground and Pods are more prevalent in countries with an evolved café culture (for example: USA, Western Europe). TCPL has presence across two coffee categories - in USA with the Eight O’Clock coffee brand and India with the Tata Coffee Grand.

Like tea, US coffee market also witnessed an increase in retail volume while foodservices and out-of-home categories were significantly affected.

With normalisation of market scenario, lower growth in retail volume is being witnessed. During the recent lockdowns, there was decrease in the level of pantry stockpiling as consumers were less worried about stock availability. With this, there will be an increase in competitive intensity (including among retailers, grocery and discounter channels) as well as higher promotional activity among different players. Innovation will play a key role, both in terms of growth in the segment and its players.

International markets - US, UK and Canada are now seeing a return to pre-covid demand trends.

a. USA:

Tea brands: Tetley, Good Earth, teapigs, Tata Tea

Coffee brand: Eight O’Clock.

% of FY21 consolidated revenue: 16%

Coffee is a significant part of the US portfolio with US coffee forming +35% of international beverages and 12% of the consolidated branded revenue in FY21 whereas US tea forms the balance 4%.

Exhibit 34: Movement in key parameters in the recent past

USA FY20 FY21 1QFY22 2QFY22

US Coffee - CC Revenue growth (%) - 9.0 -15.0 1.0

US Tea cc growth (%) - 16.0 -8.0 -12.0

EOC Bag Value Share - 4.6 4.5 4.4

US Regular Black Tea category growth (%) -1.7 -18.2 -21.7 -12.1

US Bags Coffee category growth (%) - -2.8 -7.3 -1.5

US K-cup Coffee category growth (%) - 3.7 -0.7 5.5


The USA market has been witnessing a slowdown in growth and an increase in competitive intensity. The growth is either being driven by: (i) premium/food service brands (such as Starbucks and Dunkin Donuts) that are over-investing in promotions/discounts; (ii) small niche brands that are capitalising on trend of artisanal, single-origin coffees; and (iii) private label (retailers look at SKU rationalisation and restrict shelf choice to a few select brands). Consumers are looking at authentic and premium choices in coffee, and there have been several new launches targeting this trend. In line with this trend, TCPL has launched Barista Blend, Flavors of America and Early Riser in recent years. Consumers are also more conscious about their choices and want to select healthier options.

EOC (TCPL’s power brand with a no. 4 position in Roast & Ground coffee in USA) has reported a 3-year revenue CAGR of 14%, driven by improved performance and innovations in Bags and K Cups. EOC continues to focus on innovations with a healthy pipeline and is also investing in new capabilities in the e-commerce channel.



For tea, in tandem with the UK market, and to continue strengthening its non-black tea portfolio, TCPL launched Good Earth Sensorial Blends in USA in FY21 with eight new SKUs, which have gained good traction.

During FY21, TCPL divested stake in non-core food service businesses - Empirical Group LLC (subsidiary) and Southern Tea LLC (JV) to Harris Tea Company LLC, USA, to allow it to focus more on its core branded businesses.

b. UK & Europe:

Tea brands: Tetley, teapigs, Vitax, Good Earth, Tata Tea


Liquid Beverages: Good Earth



UK FY20 FY21 1QFY22 2QFY22

CC revenue growth ex-teapigs (%) - 2.0 -13.0 1.0

CC Teapigs Revenue growth (%) - 18.0 14.0 17.0

Value market share in everyday black (%) 21.3 20.0 19.9 19.8

UK Regular Black Tea category growth (%) 1.3 -15.7 -7.6 -6.3

UK Fruit & Herbals Tea category growth (%) 8.3 6.7 4.2 -1.7


Tetley remains a key power brand for TCPL in UK & Europe with a no. 4 position in UK. With the decline in everyday black category, TCPL has been launching new products in the non-black tea category for the past few years. In FY21, the company launched a new brand in UK – Good Earth Tea, which is its third brand in tea in UK. In terms of price positioning, it straddles between Tetley (mainstream) and teapigs (super premium). The brand made its debut with a portfolio of expertly crafted teas and bubbly kombucha (carbonated tea drink) with focus being on Green and Fruit & Herbal, both popular among younger and health-conscious consumers.

In FY21, the UK delivered topline growth of 2% in constant currency (albeit with a flat market share) and profitability growth was due to a mix of gross margin expansion, arising from lower tea costs, effective trade spends and reduced overheads.

c. Canada:

Tea brands: Tetley, teapigs, Tata Tea




Canada FY20 FY21 1QFY22 2QFY22

CC Revenue growth (%) - 15.0 -25.0 -1.0

CC Revenue growth in specialty tea (%) - 35.0 -26.0 -5.0

Value market share 28.9 29.3 29.0 28.5

Canada Regular Black Tea category growth (%) 4.0 -12.9 -19.8 -9.6

Canada Speciality Tea category growth (%) 6.0 8.8 -7.2 -1.6


TCPL is a key player in the Canadian tea market with Tetley being the #1 brand in both regular as well as specialty tea with double the share of the closest branded competitor. This is also evidenced by Tetley being recognised as the Most Trusted Brand 2021 for seven years in a row, Tetley Super Teas Line winning the Product of the Year 2021 award and Tetley Cold Infusions Line achieving the Best New Product of the Year 2021. With the decline in everyday black category, TCPL has been launching new



products in the non-black tea category for the past few years. Canada had a standout performance in FY21, with Tetley’s market leadership driving extraordinary retail sales on the back of covid-induced buying. Further, the company gained market share from an already very strong share position. The business recorded strong growth in profitability, led by higher sales, lower promotions and strong control in overheads.

Exhibit 37: Launches in key international markets

Market FY17 FY18 FY19 FY20 FY21

USA New Coffee Infusions line - Alert and Relax

Eight O’ Clock Coffee expanded its Infusions line with three new varieties-

Super Spice, Acai Glow and B6

Metabolism; Entered USA with Himalayan water

Piloted new variants of Eight O’Clock coffee in

US

Launched Tetley Flavors of India;

Extended Barista Blends line from ground bags into

single serve K-Cups; Launched Early Riser

Good Earth Sensorial Blend; Premium Tetley Flavors of Britain were launched on e-

commerce

UK & Europe

Expanded teapigs range with three new

feel-good teas: Happy, Calm and Trim.

Two new variants in green tea range in the UK

market: Super Green tea and Super Green tea -

Matcha; Indulgence range of tea

including Chocolate mint, Cookies and cream,

Spiced apple and Gingerbread;

Squash product

Launched Tetley Cold Infusions

Re-launched the Tetley brand in the UK;

Strawberry & Watermelon variant to Cold Infusions range;

Two new Matcha variants in France;

Introduced UK’s Cold Infusions range into Malta and Cyprus

Tetley enveloped OOH range was relaunched with new

product and 100% recyclable packaging;

Good Earth kombucha bottles brewed from the finest black

teas and inspired by live cultures

Canada

Created a new specialty tea sub-segment; Tetley Ayurvedic

Balance teas

RTD range of Tetley Iced Teas in 3 flavours - Lemon Ginger, Orange Blossom Peach Mango & Hibiscus

Pomegranate Berry

Tetley Super Teas in Immune, Boost and

Antiox variants Six new Tetley Super Teas

Tetley Immune+ herbal tea and Tetley Sunshine herbal

tea


We estimate 1.9% sales CAGR over FY21-24E for TCPL’s international business, driven by 2.1% growth in US coffee and 1.7% growth in other international tea businesses.

The international business generates low-double digit EBIT margin (11.2% in FY20/ 13.4% in FY21). Margins witnessed expansion in FY21 primarily driven by cost control measures undertaken due to the pandemic, but are expected to normalize going ahead. However, management believes that there is further scope of improvement in margins and intends to focus on improving profitability over the medium term.



NON-BRANDED BUSINESSES

Non-branded businesses comprise plantations and extractions vertical. Within plantations, the company primarily manufactures and sells tea, coffee and other plantation produce like pepper while the extraction business caters to both instant tea as well as instant coffee consumers. The non-branded plantation business is in India, and tea & coffee extraction businesses are in India, Vietnam & the US. Tata Coffee Ltd., TCPL’s listed subsidiary (57.48% stake), is a significant contributor to non-branded sales. Russia, Africa, Europe etc. are key export markets for the coffee business.

In FY21, non-branded business witnessed significant enhancement in profits, attributable to higher profits in Tata Coffee Ltd., led by growth in the plantation segment and higher revenue driven improved performance in Vietnam (reached ~90% capacity).

In the short term, the company sees continued stress in the coffee extraction business, impacted by decline in demand from international markets, driven by covid. In the plantation business – tea will be affected by normalisation of prices after the surge seen last year due to lower production amid lockdown measures being implemented. The business outlook is expected to improve as markets normalise.

Recently, Tata coffee (in a filing with the exchanges) denied the statements made by media which stated that it could lose control over a 942-acre tea estate in Kodagu district, Karnataka. The company clarified that there was no order by the Civil Court for the take over the said land. The Court had dismissed the company’s suit (questioning the change in tenure made by the Revenue Authorities in the records from "Redeemed Sagu" to "Reserve Forest Land'’) on the ground that it did not have jurisdiction to hear the said suit. The company is consulting with its legal advisors on further recommended course of action to be pursued in this regard to protect its interests. As per the company, this matter has no bearing/impact on its operations currently.



DIGITAL INITIATIVES

In line with TCPL’s ambition to transform into a multi category consumer goods company over the next few years, a roadmap was charted out to strengthen its digital capabilities.

In an endeavour to optimize the value chain, TCPL introduced two key digital initiatives in FY19 – Distributor Management Solution (DMS) and Sales Force Automation (SFA) - to drive informed decision making at the downstream level, and improve effectiveness of S&D. DMS enables it to give secondary sales data in real time from channel partners to drive consumer insights whereas SFA digitally enables the sales force, aids in increasing productivity and enhances time spent on driving sales. Some of the other features that are leveraged include route optimisations, sales analytics and gamified learning. As on FY20 1,400 distributors, and as of FY21 all distributors, were covered under the DMS and SFA tools.

The company undertook modernisation of the ERP system by implementing SAP S4 HANA (latest offering from SAP systems, which has the latest technology and feature set, supports faster and real-time analytics and better decision-making) in FY21. This will aid in harmonising the company’s global processes on a single digital platform, which is a key enabler to being able to take up multiple digital growth agendas across geographies (currently rolled out in India and underway for other geographies). This is expected to bring in significant efficiencies in operations, reporting and business analytics for faster decision-making.

Mr. T V Swaminathan joined TCPL in March’21 as Global Chief Digital Officer (CDO) to chart out and execute a digital roadmap for the company. He is responsible to chart out and help execute a digital roadmap along with focusing on strengthening the company’s analytical capabilities and IT infrastructure. His responsibilities also include enabling the business using digital, enhancing analytical capabilities and leading the development of a digital vision and value proposition.

For seamless planning and execution, the company implemented the Integrated Business Planning (IBP) platform, a collaboration platform for stakeholders, in FY21. This helps in addressing concerns around supply chain strategy and key planning processes around demand, supply, inventory and sales & operation planning. It drives an improved topline with higher visibility and responsiveness across the value chain and addresses issues like forecast accuracy, customer service, inventory, storage costs, finished goods and packing material availability and stockouts.

Exhibit 38: Digital Transformational Ecosystem


Further, the company is working to assess demand in real time and respond proactively and is collaborating with Modern Trade (MT) and e-commerce consumers to improve the ordering process by moving to Electronic Data Interchange (EDI).

As per management interviews, a good 50% of TCPL’s hiring over the next few months will be for brand and category marketing as well as digital roles, as the company ramps up its e-commerce, D2C and alternate sales channels after the pandemic. Except for category marketing roles, all other new hires are in the digital space. The hiring for digital roles will span across functions and seniority levels.



STREAMLINING OPERATIONS AND DRIVING SYNERGIES

TCL+TGBL integration: During the announcement of the merger of the consumer products business of TCL in May’19, the company had identified Rs1.2-1.5bn of synergies at the EBIT level (both cost synergies as well as topline synergies), which would accrue over 18-24 months from integration taking place. TCPL had in place a dedicated team working on the merger integration to put the synergies together. Back-end efficiencies in terms of warehousing, logistics, transport, etc. would come into play to drive cost synergies whereas the new S&D structure in the front-end would play a key role to ensure that the topline synergies are realized.

Ahead of schedule, the company started realizing monthly run-rates of Rs50-70mn of cost synergies alone (excluding revenue & related synergies) in 4QFY21. As intended, the company would partly invest the synergies on expanding distribution, increasing innovation and powering of brands (including ATL).

Soulfull integration: Further, the company leveraged learnings from the integration of the CPB business i.e., while integrating new acquisitions like Soulfull relatively quickly. For Soulfull, TCPL was able to start billing through its system within 45 days and completed the integration within ~90-100 days based on COVID. The company is also on track to grow the outlet count to 3x from 2QFY22 and integrate the innovation process into its asset realization model.

Leveraging Big Basket: TCPL has the benefit of leveraging Tata group’s stake in Big Basket. Tata Digital Ltd., a 100% subsidiary of Tata Sons Pvt. Ltd., acquired a majority stake (~64%) in Supermarket Grocery Supplies Private Limited (Big Basket) in May’21. Big Basket is India’s largest e-commerce player in the Food & Grocery segment. Being a group company, TCPL can work with Big Basket to ensure accrual of mutual synergies. Firstly, in terms of analytics of consumer data, which can be leveraged to understand the consumer profile, frequency of purchase, products bought, etc. and secondly, in terms of enhancing availability and visibility of TCPL’s products on the Big Basket platform.



FINANCIALS

The company’s 10-yr revenue CAGR (FY10-20) including impact of the merger had been tepid at 5.2% and excluding the impact of the merger in FY20, the growth was lower at 2.8%. We believe that with the merger of the consumer products business of TCL and a renewed growth strategy of TCPL, there will be a meaningful change in the growth trajectory ahead. During FY21, the company recorded a 20.4% topline growth led by 36.2% growth in India Beverages, 18.3% growth in India Foods, 7.5% growth in International Beverages and 15.1% growth in non-branded business. We build in a net revenue growth of 10.7% over FY21-24E driven by 14% growth in India Beverages, 17.4% growth in India Foods, 1.9% growth in International Beverages and 6.8% growth in non-branded business.

Exhibit 39: With the merger effective Feb’20, contribution from India increased from 40%+ to 55%+


Exhibit 40: We build in standalone revenue CAGR of 14.2% over FY21-24E ….

Exhibit 41: ….aiding 10.7% CAGR in consolidated revenue during the same period

29.9

30.6

32.2

34.3

56.9

71.5

82.5

94.2

106.

6

3.5 2.65.0 6.6

65.9

25.7

15.3 14.2 13.1

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

20.030.040.050.060.070.080.090.0

100.0110.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Revenue from standalone operations (Rsbn) Growth (%)

(Rsbn) (%)

66.4

67.8

68.2

72.5

96.4

116.

0

126.

6

141.

8

157.

6

-17.0

2.2 0.56.4

32.9

20.4

9.112.0 11.1

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

0.020.040.060.080.0

100.0120.0140.0160.0180.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Revenue from Consol. Operations (Rsbn) Growth (%)

(Rsbn) (%)




Exhibit 42: India portfolio will be 68.3% of overall topline in FY24E, from 60.7% in FY21

35.0 39.7 42.0 42.6 43.2

21.421.0 22.9 23.9 25.1

33.5 29.9 26.4 24.9 23.3

10.1 9.7 9.0 8.9 8.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

FY20 FY21 FY22E FY23E FY24E

India Beverages India Foods International Beverages Non-branded Business

(%)


India tea costs hit an all-time high in Sept’2020 (~70% higher than in Sept’2019) primarily due to the demand-supply gap where supply fell short as the covid-led lockdowns prevented plucking at tea estates. To counter the same, the two leaders in the packaged tea business in India (TCPL and HUL) had been taking price increases since FY21. Further, since the end of 1QFY22, tea prices have been falling but still remain elevated and range-bound. However, eventual stabilization of tea prices will benefit TCPL in terms of margin improvement in 2HFY22. In case of food inflation in freight, plastics and therefore packaging, coal has been affecting the company’s salt business.

Exhibit 43: Inflationary movement in domestic & global tea prices in FY21….

0

50

100

150

200

250

300

1QF

Y18

2QF

Y18

3QF

Y18

4QF

Y18

1QF

Y19

2QF

Y19

3QF

Y19

4QF

Y19

1QF

Y20

2QF

Y20

3QF

Y20

4QF

Y20

1QF

Y21

2QF

Y21

3QF

Y21

4QF

Y21

1QF

Y22

2QF

Y22

S.India Tea (Rs/kg) N.India Tea (Rs/kg) Kenya Tea ($c/kg)

(Rs/$c per kg)




Exhibit 44: …impacted domestic gross margins as well as…. Exhibit 45: … consolidated gross margins; we build ~370bps over FY21-24E with cooling off of tea prices

36.5

38.3

40.9

39.4

39.0

33.9

38.1

38.8

39.3

0.0

10.0

20.0

30.0

40.0

50.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Standalone gross margin (%)

(%)

45.4

47.5

45.7

44.7

43.9

40.5

42.7

43.5

44.2

36.0

38.0

40.0

42.0

44.0

46.0

48.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Consolidated gross margin (%)

(%)


In line with most costs, TCPL had cut down on ad spends in FY21. The company still lags FMCG peers in terms of ad spends and going ahead we expect it to raise its spends as part of its journey to build highly salient and power brands.

Exhibit 46: Movement in key cost components

Particulars FY16 FY17 FY18 FY19 FY20 FY21

Total RM cost 36,216 35,616 36,993 40,076 54,107 69,023

as a % of cons. net revenue 54.6 52.5 54.3 55.3 56.1 59.5

Employee Cost 8,051 8,350 8,214 8,063 8,848 9,702


A&SP 5,775 5,847 5,089 5,475 6,767 7,263


Freight and Forwarding 1,438 1,429 1,601 1,919 3,966 4,573


Professional and legal fees 1,219 1,157 1,124 1,505 1,537 1,794


Manufacturing and Contract Packing Expenses 798 916 904 982 1,111 1,215



In case of food, margins will be secondary to growth as the company will continue to invest to grow the Sampann and Soulfull brands. At an overall level, similar to other FMCG companies, TCPL looks to tweak pack sizes, prices, A&P spends and discretionary spends to ensure delivery of decent bottom-line performance trajectory.

Exhibit 47: We build in standalone EBITDA CAGR of 21.9% over FY21-24E …

Exhibit 48: … and consolidated EBITDA CAGR of 18.6% with…

3.6 3.6 5.0 4.4 8.0 9.2 12.7 14.7 16.6

16.2 1.0

38.3

-12.6

83.5

14.2

38.1

15.8 13.2

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

0.02.04.06.08.0

10.012.014.016.018.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Standalone EBITDA (Rsbn) Growth (%)

(Rsbn) (%)

6.5 7.9 8.4 7.9 12.9 15.4 18.2 22.0 25.8-14.5

20.9

6.0

-6.3

64.4

19.5 17.7 21.1 17.1

-20.0-10.00.010.020.030.040.050.060.070.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Consolidated EBITDA (Rsbn) Growth (%)

(Rsbn) (%)




Exhibit 49: ….~280bps expansion in standalone EBITDA margin and…

Exhibit 50: ….~300bps expansion in consolidated EBITDA margin over FY21-24E

12.0

11.8

15.6

12.8

14.1

12.8

15.4

15.6

15.6

0.0

5.0

10.0

15.0

20.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Standalone EBITDA margin (%)

(%)

9.9

11.7

12.3

10.8

13.4

13.3

14.3

15.5

16.3

0.0

5.0

10.0

15.0

20.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Consolidated EBITDA margin (%)

(%)


Exhibit 51: Adverse impact of tea inflation in FY21 was offset by higher margins in international business

15.3

13.3

14.7

11.5

13.8

21.5

13.1

6.2

4.2

10.7

11.9

13.4

16.0

13.3

12.4

10.1

12.9

19.4

16.0

14.8

13.5

15.9

13.6

10.5

10.5

9.9

9.3

14.7

11.2

14.6

13.0

13.2

12.7

13.4

12.5

14.0

13.8

12.1

12.1

12.5

12.6

18.5

13.7

10.4

9.2

12.8

12.5

12.8

9.1

6.7

6.7

0.5

5.7

5.3

6.3

8.3

11.9

8.1

6.7

7.7

13.3

11.5

11.6

11.2 11

.9

17.2

13.0

10.3

9.4

12.3

12.0

12.4

0.0

5.0

10.0

15.0

20.0

25.0

1QFY20 2QFY20 3QFY20 4QFY20 FY20 1QFY21 2QFY21 3QFY21 4QFY21 FY21 1QFY22 2QFY22

India Beverages India Foods International Beverages Branded business Non Branded branded Total Segment EBIT margin

(%)


Exhibit 52: We build in standalone adjusted PAT CAGR of 21.6% over FY21-24E ….

Exhibit 53: … and consolidated adjusted PAT CAGR of 23.8%

2.7 2.8 4.5 4.1 5.6 6.7 9.0 10.5 12.0

-21.1

0.5

64.8

-9.7

36.7

18.6

35.7

16.6 13.8

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Standalone adj. PAT (Rsbn) Growth (%)

(Rsbn) (%)

1.9 3.9 5.1 4.3 6.7 8.8 11.0 13.9 16.7-41.5

97.9

32.6

-15.9

54.632.3 24.7 26.5 20.2

-50.0

0.0

50.0

100.0

150.0

0.0

5.0

10.0

15.0

20.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Consolidated adj. PAT (Rsbn) Growth (%)

(Rsbn) (%)




Exhibit 54: Consolidated adjusted PAT margin is estimated to expand by ~320bps over FY21-24E ….

Exhibit 55: … leading to improvement in return ratios

-0.1 5.

7

7.3

5.6

4.8

7.4

8.5

9.8

10.6

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Adj. PAT margin (%)

(%)

3.3

6.2

7.7

6.0

6.3

6.2

7.5

9.1

10.4

7.5

9.0

9.5

8.8

8.8

8.1

9.5

11.4

12.9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

RoE (%) RoCE (%)

(%)


TCPL’s cash conversion cycle has lagged FMCG peers. Over the last two years, the company has significantly reduced its working capital days driven by better inventory management, change in terms of trade and increased level of vendor credit. However, it is unlikely for the company’s working capital to become negative similar to other larger peers since the company’s focus would be on growth & expansion of business.

With the trimming of distributors from ~4,500 to 1,500-1,600, the company shifted from credit to significantly cash business in general trade. Currently, receivables in books are primarily related to the e-commerce and modern trade channels.

Further, the company is making sure that while booking tea inventory, it is availing certain credit and is leveraging its market strength to make sure not to carry excess inventory on the books.

Exhibit 56: TCPL’s cash conversion cycle has been longer than other FMCG companies but has seen significant improvement over FY19-21; we build in further improvement over FY21-24E

Cash conversion cycle on different premises FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E

On average sales basis

Inventory days 89 83 78 77 63 62 60 54 50

Debtor days 33 32 33 33 30 26 20 19 18

Creditor days 40 38 39 34 30 40 45 45 45

Cash conversion cycle 83 77 72 76 63 48 36 28 24

On average COGS/sales basis

Inventory days 164 158 143 139 112 105 105 95 90

Debtor days 33 32 33 33 30 26 20 19 18

Creditor days 72 73 71 62 54 68 79 80 81


On year-end sales basis

Inventory days 90 78 78 81 65 71 56 58 48

Debtor days 33 32 35 34 35 24 19 22 17

Creditor days 37 40 38 33 36 51 43 51 44


On year-end COGS/sales basis

Inventory days 164 149 143 147 115 119 97 102 87

Debtor days 33 32 35 34 35 24 19 22 17

Creditor days 68 76 70 61 64 86 75 91 78





Exhibit 57: FCF to see sharp increase over FY21-24E with now major capital expenditure expected

Exhibit 58: We build in gradual increase in DPS

1.5

1.3

3.5

2.6

1.5

1.8

2.2

2.0

2.5

-0.3

6.1

0.1

-0.5

9.3

14.8

14.8

14.8

18.8

-3.0

0.0

3.0

6.0

9.0

12.0

15.0

18.0

21.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

Capex Free Cash Flow

(%)

2.3 2.4 2.5 2.5 2.7 4.1 5.1 6.5 8.0

72.9

38.430.8

36.7 37.442.4 42.4 42.8 43.9

0.0

20.0

40.0

60.0

80.0

0.0

2.0

4.0

6.0

8.0

10.0

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

FY

22E

FY

23E

FY

24E

DPS (Rs) Dividend payout ratio (%)

(Rs) (%)




VALUATION AND VIEW

Over FY21-24E, we expect revenues to grow at a 10.7% CAGR led by ~15% growth in India business. During the announcement of the merger of the consumer products business of TCL in May’19, the company had identified Rs1.2-1.5bn of synergies at the EBIT level, which was expected to accrue over 18-24 months from integration taking place. Ahead of schedule, the company started realizing monthly run-rates of Rs50-70mn of cost synergies alone (excluding revenue & related synergies) in 4QFY21. As intended, it would partly invest the synergies on expanding distribution, increasing innovation and powering of brands (including ATL). This along with normalization of input costs from FY21 & FY22 levels, pricing actions over the last 12 months till the end of Oct’21, mix improvement and scale benefits over the next few years will result in robust EBITDA margin expansion for TCPL (estimating ~300bps improvement over FY21-24E).

We are thus building in 23.8% earnings CAGR over FY21-24E. While there has been a notable improvement in working capital over the last few years, it is fairly unlikely for TCPL’s working capital to turn negative, which is the case for other larger FMCG peers since TCPLS’s focus would be on growth and expansion of business. Return ratios, when compared to FMCG peers remain low, but we expect improvement to mid-teens levels in the next four years. Earnings growth trajectory beyond FY24 also remains fairly robust, with good visibility on revenue growth. We thus value TCPL at ~48x on March’2024E EPS, giving us a target price (TP) of Rs870, implying an upside of ~17% from the current market price (CMP).

Exhibit 59: One year forward P/E

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Dec

-16

Jun-

17

Dec

-17

Jun-

18

Dec

-18

Jun-

19

Dec

-19

Jun-

20

Dec

-20

Jun-

21

Dec

-21

Forward PE 5 yr Median SD +1 SD -1

(x)

52.149.2

24.6

36.9




Exhibit 60: Return profile of coverage companies over various periods

Company

Absolute return (%) CAGR return (%)

1m 2m 3m 4m 5m 6m 12m v. 52W high

1.5yr 2yr 3yr 4yr 5yr 10yr 15yr

Nifty 50 2.2 -1.8 -1.5 1.3 10.1 10.4 24.1 -6.7 41.6 19.4 16.9 13.3 16.2 14.1 10.3

Sensex 30 2.1 -1.8 -1.5 1.2 10.8 11.0 22.0 -6.4 40.7 18.8 17.3 14.4 17.0 14.2 10.1

BSE FMCG 0.7 -1.6 -7.3 -5.5 2.3 2.0 9.3 -10.6 14.4 9.9 5.2 6.5 11.1 13.1 NA

BSE CDGS 3.2 1.7 2.7 11.1 13.2 15.2 29.7 -6.7 50.0 24.9 15.4 6.6 14.8 16.8 NA

Britannia 1.7 -1.9 -8.7 -9.8 5.3 -1.2 0.8 -13.2 0.0 9.1 5.0 11.2 20.1 32.0 26.2

Colgate 3.3 -4.0 -11.3 -12.5 -13.1 -12.1 -5.4 -18.8 3.5 0.6 3.3 7.7 10.4 11.6 14.5

Dabur -2.5 -1.0 -6.0 -6.7 -3.4 2.0 8.6 -12.0 15.7 12.5 10.4 13.5 15.8 19.3 17.9

Emami -1.5 -2.3 -9.6 -13.1 -7.1 -7.4 22.5 -16.5 76.8 29.4 7.3 -6.0 1.8 16.4 18.0

Gillette India Ltd. -3.1 -6.7 -10.8 -9.6 -12.2 -7.3 -9.1 -16.2 3.7 -10.6 -6.8 -6.1 4.1 10.3 12.9

Hind. Unilever 1.8 -1.4 -12.6 -13.4 1.2 -4.5 -1.5 -17.5 5.4 10.8 9.1 14.6 23.4 19.2 17.3

ITC -1.4 -2.3 -7.7 3.2 6.4 7.6 4.3 -17.8 7.9 -4.2 -8.2 -4.6 -2.0 5.0 9.1

Marico -4.8 -9.8 -6.4 -5.8 -6.2 -3.4 27.3 -15.6 28.5 22.5 11.1 12.3 14.5 21.9 21.8

Nestle 2.9 3.7 1.3 1.2 11.3 11.8 7.2 -4.4 9.6 15.4 21.1 25.8 26.7 17.0 NA

Tata Consumer -4.5 -8.2 -8.6 -14.0 -1.7 -1.5 26.0 -16.4 54.4 52.1 50.2 23.8 43.5 23.5 16.8

Asian Paints 7.6 9.1 4.3 5.7 14.3 13.0 22.4 -3.5 59.0 37.7 35.1 30.7 30.6 29.3 29.1

Berger Paints 2.7 4.1 -4.6 -6.0 -8.5 -4.1 1.6 -11.6 34.7 22.3 32.7 29.6 29.7 38.0 29.0

United Breweries 5.4 -4.4 0.9 7.5 11.0 9.7 33.7 -11.2 32.7 11.8 4.8 10.1 15.3 15.2 NA

United Spirits 1.7 -5.2 5.3 25.6 40.2 35.8 55.3 -11.9 32.0 22.4 12.2 5.2 18.2 24.8 11.6

Jubilant Foodworks -1.6 -2.7 -11.1 -10.1 -4.9 16.6 28.7 -21.8 62.9 47.4 42.1 42.1 53.1 NA NA

Westlife Development 2.7 -3.1 -0.7 2.3 0.2 12.7 23.4 -10.6 49.6 28.1 13.4 14.3 27.7 63.7 NA

Burger King -4.6 -7.3 -12.9 -12.2 -21.7 -10.9 -19.3 -25.4 NA NA NA NA NA NA NA



KEY RISKS

The following can be the risk factors which can affect the company in terms of lower-than-expected topline growth or profitability:

Slower than estimated expansion of sales & distribution: Inability or slower overhaul of the distribution network & outlet reach may have an adverse impact on the company’s topline.

Sluggish pace of shift of business from unorganized to organized segment: Slower-than-expected shift from the unbranded to branded play in tea, pulses, spices, etc. can temper TCPL’s growth prospects.

Hyper input cost inflation or inability to raise consumer prices equal to inflation: The adverse impact on profitability will depend on the company’s ability to tackle volatility or inflationary environment in RM prices, either through price hikes or cost-control measures. If the competitive landscape does not allow the company to raise prices, the impact of the same will flow through to the EBITDA.

Significant increase in competitive intensity in the branded businesses: Given the increase in investments and active competition from players like HUL, ITC, NEST etc. in terms of innovation, any lapses from TCPL’s end will hamper/dilute its positioning in the sector.

Interest rates and Foreign exchange rate exposures

Extraneous factors like macro-economic environment or a crisis like COVID-19 pandemic

Impact on plantation yield: Plantation yield of TCPL’s subsidiary and associate companies depends on rainfall, ageing of bushes and pest attacks, among others.



CURRENT SHAREHOLDING

Exhibit 61: Shareholding breakdown as on September’21

25.9%

13.3%

34.7%

26.1%

Foreign portfolio investors

Domestic institutional investors

Promoters

Public & Others


Exhibit 62: Top 10 shareholders

Name of the shareholder % Holding

First State Investments ICVC 4.1%

Mitsubishi UFJ Financial Group Inc 3.8%

Life Insurance Corporation of India 2.7%

Vanguard Group Inc 2.3%

Government Pension Fund – Global 2.2%

BlackRock Inc 2.2%

Norges Bank 2.1%

SBI Funds Management Pvt Ltd 1.1%

Goldman Sachs Group Inc 1.0%

Axis Asset Management Co Ltd 0.9%




BOARD OF DIRECTORS AND MANAGEMENT & LEADERSHIP

Exhibit 63: Board of directors

Name Designation Background

Mr. N Chandrasekaran Chairman

Since Jan’2017, Mr. Chandrasekaran is the Chairman of the Board at Tata Sons, which he joined as a Director in Oct’2016. He also chairs the Boards of several group operating companies, including TCPL, Tata Steel, Tata Motors, Tata Power, Tata Chemicals, Indian Hotels and TCS (of which he was Chief Executive from 2009-17). In addition, he is a Director on the Board of the Reserve Bank of India, since 2016 and is also on the International Advisory Council of Singapore’s Economic Development Board, the Chairman of IIM Lucknow, the President of the Court at Indian Institute of Science, Bengaluru, the Co-Chair of the India US CEO Forum and on the Board of Governors of New York Academy of Sciences.

Mr. P.B. Balaji Non-executive, Non-independent Director

Mr. Balaji is the Group CFO Tata Motors Ltd. since Nov’2017 and serves on the Board of several group companies of Tata Motors Ltd. Prior to joining Tata Motors, Mr. Balaji was the Executive Director, Finance & IT and CFO of Hindustan Unilever Ltd., and was a part of Unilever America’s Supply Chain and the Group Chief Accountant of Unilever worldwide earlier.

Mr. S. Santhanakrishnan Independent Director

Mr. Santhanakrishnan comes with four decades of specialised experience in Accounting & Finance, Strategy & Planning and Acquisitions with International exposure. He is on the Accounting Standards Board and on the boards of various companies. He is actively involved with multiple government & industry bodies.

Mr. Siraj Chaudhry Independent Director

Mr. Chaudhry is an Independent Director on the Boards of Tata Consumers Products, Tata Coffee, Dhanuka Agritech and Jubilant Ingrevia. He collaborated with the social sector and the government on numerous nation-building projects. Mr. Chaudhry has 30+ years of experience in building, turning around, acquiring and divesting businesses. He is currently the Managing Director & CEO of NCML.

Mr. Bharat Puri Independent Director

Mr. Puri is the Managing Director of Pidilite Industries Ltd. since April’15, having joined the Board of Pidilite Industries Ltd as an Independent Director in 2008. Mr. Puri has been a successful global business leader who has built, energised and led diverse teams across numerous geographies in both developed as well as developing markets. Prior to Pidilite, he was an integral part of Asian Paints, Cadbury India and Mondelez International.

Ms. Shikha Sharma Independent Director

Ms. Sharma was the MD & CEO of Axis Bank from 2009-2018. Currently, she serves as an Independent Director on various Boards. She has over three decades of experience in the financial sector, with her first stint being in ICICI Bank Ltd. in 1980. Ms. Sharma was a member of RBI’s Technical Advisory Committee, RBI’s Panel on Financial Inclusion and the Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households.

Mr. Sunil D’souza Managing Director & CEO

Mr. D’Souza is the MD & CEO of TCPL since April’21. With 27 years of rich experience, he has strong domain knowledge of the consumer products business with a distinct focus on strategy, growth and execution. Prior to TCPL, he served as the MD of Whirlpool India Ltd. for 4 years and is credited with having turned Whirlpool into a remarkable growth story in India. He began his career at HUL in 1993 and then spent ~15 years at PepsiCo, where he held several leadership roles. Mr. D’Souza is an engineering graduate and an alumnus of IIM-C.

Mr. L. Krishnakumar Executive Director & Group CFO

Mr. Krishnakumar is the Executive Director and Group CFO of TCPL. He started his career as a management consultant with A. F. Ferguson and Co. and subsequently worked with Larsen and Toubro Ltd. across multiple functions. In 2000. He joined the Tata Group in the Hotels business and was appointed Senior Vice President - Finance of the erstwhile Tata Tea in India in 2004. With qualification in Chartered Accountancy, Cost Accountancy and Company Secretarial, he is a Director on the Board of NourishCo Beverages, Tata Starbucks and several of the Company’s overseas subsidiaries in addition to Infiniti Retail.




Exhibit 64: Management & Leadership


Mr. Sunil D’souza Managing Director & CEO

Mr. D’Souza is the MD & CEO of TCPL since April’21. With 27 years of rich experience, he has strong domain knowledge of the consumer products business with distinct focus on strategy, growth and execution. Prior to TCPL, he served as the MD of Whirlpool India Ltd. for 4 years and is credited with having turned Whirlpool into a remarkable growth story in India. He began his career at HUL in 1993 and then spent ~15 years at PepsiCo, where he held several leadership roles. Mr. D’Souza is an engineering graduate and an alumnus of IIM-C.

Mr. L. Krishnakumar Executive Director & Group CFO

Mr. Krishnakumar is the Executive Director and Group CFO of TCPL. He started his career as a management consultant with A. F. Ferguson and Co. and subsequently worked with Larsen and Toubro Ltd. across multiple functions. In 2000, he joined Tata Group in the Hotels business and was appointed Senior Vice President - Finance of the erstwhile Tata Tea in India in 2004. A qualified in Chartered Accountancy, Cost Accountancy and Company Secretarial, he is a Director on the Board of NourishCo Beverages, Tata Starbucks and several of the Company’s overseas subsidiaries in addition to Infiniti Retail.

Mr. Ajit Krishnakumar Chief Operating Officer

Mr. Ajit joined TCPL in Jan’2020 as COO and is responsible for business integration and transformation as well as the integrated India operations and B2B businesses. Prior to this, he was a SVP in the Chairman’s Office at Tata Sons, and was formerly an investment banker & advisor with Bank of America Merrill Lynch and Rothschild & Co. He holds a post-graduate degree in business administration from the University of Michigan, Ann Arbor and has a bachelor’s degree in business administration from the University of Hartford, Connecticut.

Mr. Amit Chincholikar Global Chief Human Resources Officer

Mr. Chincholikar joined TCPL in Sept’2018 and was appointed Global CHRO in Dec’2018. He moved from Tata Sons where he was SVP of Group Human Resources. He has been with the Tata Group since 2010, prior to which he was with the Aditya Birla Group and Mercer Consulting. He is a post-graduate from Symbiosis Institute of Business Management and has graduated in science with specialisation in statistics & operations research from the University of Mumbai.

Mr. T V Swaminathan Global Chief Digital Officer

He joined TCPL in Mar’2021 as Global CDO to chart out and execute a digital roadmap for the company. With 24 years of experience, he was previously with Nissan Motors, Japan as Chief Digital Officer. Prior to this, he has held multiple leadership roles across various businesses in General Electric (GE) and has also been a part of Accenture and Servion Global Solutions. Mr. Swami is a post-graduate in computer applications with a bachelor’s degree in computer science.

Mr. Adil Ahmad President, International Business

Mr. Ahmad joined TCPL in 2015 as Global CMO and in 2018 became the President for its International Business. Prior to this, he had a 20-year career with Reckitt Benckiser, holding leadership positions across UK, India, Middle East & East Asia, in both strategic & operational roles. He is a graduate from St. Stephens College, Delhi and holds an MBA from Case Western University, Ohio.

Ms. Deepika Bhan President, Packaged Foods (India)

Ms. Deepika Bhan joined TCPL in May’2021 as President - Foods Business. Prior to this, she spent 15 years at HUL, most recently as the Global Brand Director. She is an Economics (Hons) graduate from St. Xavier’s’ College and holds a master’s degree in Business Administration from the Xavier Institute of Management, Bhubaneswar, Odisha.

Mr. Punit Gupta Senior Vice President, Strategy and M&A

Mr. Gupta joined TCPL in Apr’2021 and leads the Strategy and M&A function. He has ~16 years of experience across operational & consulting roles across India, APAC, Europe & North America. Prior to TCPL, he headed business strategy for Samsung Electronics (South-West Asia). He is a Mechanical Engineer from Delhi College of Engineering and holds an MBA from XLRI, Jamshedpur. Mr. Gupta has prior experience with APNT, HUL, Accenture and A.T. Kearney.

Mr. Vikram Grover Managing director, NourishCo

Mr. Grover joined TCPL in 2011 as Marketing Head for South Asia and now he leads the subsidiary, NourishCo Beverages. Prior to this, he worked at HUL and in Unilever France & Indonesia. Mr. Grover holds an MBA from IIM-C and a bachelor’s degree from Punjab Engineering College, Chandigarh.

Mr. Navaneel Kar Head, Sales (India)

Mr. Kar joined TCPL in Aug’2019 from ITC Ltd. where he spent 16 years managing multiple roles. His career coincided with the diversification of ITC from a single category company to a diversified FMCG organisation. He contributed significantly to the launch & scale-up of the Foods businesses in ITC as Category Manager. Mr. Kar has also worked as a Manager with Tata Motors, joining them as a Graduate Engineer Trainee (GET) from Delhi College of Engineering. He holds an MBA from XLRI, Jamshepdur.




Mr. Prashant Parameswaran MD & CEO, Tata Consumer Soulfull Pvt. Ltd.

Mr. Prashant Parameswaran is the MD & CEO of Tata Consumer Soulfull Private Ltd. since April 2021. In his previous role, he served as the Co-Founder and MD & CEO of Kottaram Agro Foods (Soulfull) for 10 years. With ~20 years of experience, he began his career in 2001 by successfully setting up the distribution, operations and retail business units in India for the Kottaram Group. He has also worked in the US with international firms such as Limited brands and Information Resources Inc.

Mr. Puneet Das President, Packaged Beverages India & South Asia

Mr. Puneet Das joined TCPL in Nov’2017 and was appointed President – Packaged Beverages (India & South Asia) in Apr’2021. Prior to this, he was SVP – Packaged Beverages, India where he played a key role in strengthening the core Tata Tea brand and sub-brands. He brings ~20 years of experience in the FMCG industry and has held senior marketing positions in Marico, Pepsico and GSK Consumer. Mr. Gupta is a graduate from St. Stephen’s College, Delhi, and holds a post-graduate diploma in management (MBA) from XLRI, Jamshedpur.

Ms. Gauri Rao Global General Counsel

Ms. Gauri Rao joined TCPL in Dec’2020 from the Group Legal team at Tata Sons. As Global General Counsel, she handles legal affairs and strategy for the India and International business. In her previous role at Tata Sons, Ms Rao worked with several Tata companies. Prior to joining Tata Sons, she worked with Herbert Smith Freehills in London and at Amarchand Mangaldas & Co. in New Delhi.

Mr. Chacko P. Thomas MD & CEO, Tata Coffee Ltd.

Mr. Chacko P. Thomas joined Tata Coffee Ltd in 2015 as Executive Director & Deputy CEO. He was then appointed its MD & CEO in April’19. His stint with the Tata Group began in 1992 as an Assistant Manager in erstwhile Tata Tea. He was associated with the South India Plantations Division of Tata Tea, now known as Kanan Devan Hills Plantations Company (KDHP) in Munnar, for ~23 years. In 2012, he was appointed Managing Director of KDHP.

Mr. Vikas Gupta Global Head, R&D

Mr. Vikas Gupta was appointed Global Head of R&D for TCPL in June’20. He began as Head of Product Innovation for India in 2013 and was appointed Head of Global NPD in 2017 for the beverages business. Previously, he spent ~10 years in GlaxoSmithKline Consumer Healthcare Ltd. and 3 years with HUL in the R&D function. Vikas has a master’s in Food Technology from the Central Food Technology Research Institute, Mysore and is a graduate in Horticulture from University of Horticulture and Forestry, Solan, Himachal Pradesh.




FINANCIALS (CONSOLIDATED)

Exhibit 65: Income statement

Y/E March (Rsmn) FY20 FY21 FY22E FY23E FY24E

Net Sales 96,374 1,16,020 1,26,598 1,41,799 1,57,557

% Growth 32.9 20.4 9.1 12.0 11.1

COGS 54,107 69,023 72,602 80,110 87,910

Staff costs 8,848 9,702 10,880 11,998 13,080

Advertisement Expenses 6,767 7,263 8,579 9,814 10,997

Other expenses 13,731 14,595 16,372 17,881 19,818

Total expenses 83,453 1,00,583 1,08,434 1,19,803 1,31,806

EBITDA 12,922 15,438 18,165 21,996 25,751

EBITDA margin (%) 13.4 13.3 14.3 15.5 16.3

% growth 64.4 19.5 17.7 21.1 17.1

Other income 1,116 1,214 1,407 1,576 1,752

Interest costs 779 687 763 623 608

Depreciation 2,417 2,547 2,754 2,826 2,914

Profit before tax (before exceptional items)

10,842 13,417 16,055 20,123 23,981

Exceptional items -2,053 -234 -164 0 0

Tax 3,437 3,245 4,041 5,065 6,036

Rate of Tax (%) 39.1 24.6 25.4 25.2 25.2

Share from associates/NCI 754 1,371 1,041 1,179 1,263

Reported PAT 4,598 8,567 10,809 13,879 16,682

Adj PAT 6,650 8,801 10,973 13,879 16,682

Adj PAT margin (%) 6.9 7.6 8.7 9.8 10.6

% Growth 54.6 32.3 24.7 26.5 20.2


Exhibit 67: Balance sheet


Share capital 922 922 922 922 922

Reserves 1,37,227 1,44,424 1,46,851 1,54,785 1,64,141

Net worth 1,38,149 1,45,345 1,47,772 1,55,707 1,65,063

Minority Interest 10,925 10,925 11,966 13,145 14,408

Total debt 12,564 12,066 7,370 7,388 7,408

Other LT liabilities 6,303 10,393 10,099 9,824 9,566

Total liabilities 1,67,941 1,78,729 1,77,208 1,86,064 1,96,445

Gross block 1,37,718 1,40,684 1,43,184 1,45,184 1,47,684

Depreciation 24,593 24,649 27,402 30,228 33,142

Net block 1,13,125 1,16,036 1,15,782 1,14,956 1,14,542

Capital work-in-progress 876 932 670 670 670

RoU 2,935 3,864 3,864 3,864 3,864

Other LTA 5,581 5,702 4,987 5,321 5,802

Investments 13,729 8,391 8,388 8,904 9,456

Inventories 17,120 22,492 19,280 22,421 20,931

Debtors 9,224 7,613 6,552 8,537 7,365

Cash 16,215 30,749 32,406 40,792 51,825

Other current assets 5,926 6,401 7,041 7,688 8,303

Total current assets 48,485 67,255 65,279 79,439 88,425

Creditors 9,440 16,255 14,974 19,923 18,854

Other current liabilities & provisions

7,350 7,194 6,786 7,167 7,460

Total current liabilities 16,790 23,449 21,761 27,089 26,314

Net current assets 31,695 43,806 43,518 52,349 62,111

Total assets 1,67,941 1,78,729 1,77,208 1,86,064 1,96,445


Exhibit 66: Cash flow


PAT 6,810 12,046 11,850 15,058 17,945

Depreciation 2,417 2,547 2,754 2,826 2,914

Other 2,415 136 -644 -953 -1,144

(Inc.)/dec. in working capital -820 1,834 2,993 -178 1,592

Cash flow from operations 10,822 16,564 16,952 16,753 21,307

Capital expenditure (-) -1,508 -1,792 -2,151 -2,000 -2,500

Net cash after capex 9,315 14,772 14,802 14,753 18,807

Inc./(dec.) in investments & others

-353 4,023 -2,329 78 104

Cash from investment activities

-1,860 2,231 -4,480 -1,922 -2,396

Dividends paid (-) -2,216 -2,673 -4,654 -5,944 -7,327

Others -867 -1,587 -6,161 -501 -551

Cash from financial activities

-3,083 -4,260 -10,815 -6,445 -7,878

Opening cash balance 10,336 16,215 30,749 32,406 40,792

Closing cash balance 16,215 30,749 32,406 40,792 51,825

Change in cash balance 5,879 14,534 1,657 8,386 11,033

Source: Company, Nirmal Bang Institutional Equities Research;

Exhibit 68: Key ratios

Y/E March FY20 FY21 FY22E FY23E FY24E

Per share (Rs)

EPS 7.2 9.5 11.9 15.1 18.1

Book value 149.9 157.7 160.3 169.0 179.1

DPS 2.7 4.1 5.1 6.5 8.0

Valuation (x)

EV/sales 7.0 5.7 5.2 4.5 4.0

EV/EBITDA 52.3 42.8 36.0 29.3 24.6

P/E 103.0 77.9 62.5 49.4 41.1

P/BV 5.0 4.7 4.6 4.4 4.2

Return ratios (%)

RoCE* 8.8 8.1 9.5 11.4 12.9

RoE 6.3 6.2 7.5 9.1 10.4

RoIC* 10.2 9.3 11.2 14.1 16.9

Profitability ratios (%)

Gross margin 43.9 40.5 42.7 43.5 44.2

EBITDA margin 13.4 13.3 14.3 15.5 16.3

EBIT margin 10.9 11.1 12.2 13.5 14.5

PAT margin 6.9 7.6 8.7 9.8 10.6

Liquidity ratios (%)

Current ratio 2.9 2.9 3.0 2.9 3.4

Quick ratio 1.9 1.9 2.1 2.1 2.6

Solvency ratio (%)

Debt to Equity ratio 0.1 0.1 0.0 0.0 0.0

Turnover ratios

Total asset turnover ratio (x) 0.6 0.6 0.7 0.8 0.8

Fixed asset turnover ratio (x) 0.7 0.8 0.9 1.0 1.1

Inventory days 115 119 97 102 87

Debtors days 35 24 19 22 17

Creditor days 64 86 75 91 78


*Pre-tax



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This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as “NBEPL”) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH000001436. NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I/We, Mr. Vishal Punmiya, the research analyst and Ms. Videesha Sheth, the research associate and author(s) of this report, hereby certify that the views expressed in this research report accurately reflects my/our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst is principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.



Disclaimer

Stock Ratings Absolute Returns

BUY > 15%

ACCUMULATE -5% to15%

SELL < -5%

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Dealing

Ravi Jagtiani Dealing Desk [email protected] +91 22 6273 8230, +91 22 6636 8833

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Initiating Coverage Tata Consumer Products Ltd.

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