Fundamental Analysis of Tata Consumer Products: Last year, Tata Consumer Products Ltd. made news by showing interest in acquiring Bisleri. What’s more? In the past 2-3 years, it has flooded the market with a series of products: Tata Sampann, Tata Soulfull, TataQ, and more. Is it a strong and growing company from an investor’s point of view? In this article, we’ll try to answer that by conducting a fundamental analysis of Tata Consumer Products.
Fundamental Analysis of Tata Consumer Products
We’ll start off our fundamental analysis of Tata Consumer Products Ltd with a brief overview of the business. Later, we’ll read about the various sub-sectors of the broad F&B industry. Next, we’ll race through the segment analysis, financials, and leverage analysis of the stock. A highlight of the future plans and a summary conclude the article at the end.
Company Overview
Tata Consumer Products Ltd. is the food and beverages arm of the salt-to-software business conglomerate Tata Group. It came into existence after the merger of Tata Global Beverages Ltd. (TGBL) and the consumer business of Tata Chemicals in 2019. Tata Global Beverages was renamed Tata Consumer Products.
As of the present date, TCPL is a leading FMCG company with an international presence. It sells tea, coffee, breakfast cereal, kitchen essentials, packaged drinking water, and more. It owns famous brands such as Tata Tea, Tetley, Tata Salt, Eight O’Clock, Bislery, Tata Sampann, Tata Soulfull, and more in its portfolio.
The company traces its history back to 1964 when an alliance was formed between James Finlay and the Tata Group to launch Tata Finlay. Since then the business has grown organically and inorganically. It has acquired marquee brands such as Tetley, Good Earth, and Soulful.
In addition to selling packaged food and beverages, Tata Consumer Products Ltd in a joint venture with Starbucks Coffee also operates 268 Starbucks stores in India.
We now know what the company does. In the next section of our fundamental analysis of Tata Consumer Products, we’ll get ourselves acquainted with the industry landscape of the FMCG giant.
Industry Overview
The organized packaged foods and beverages industry is valued at Rs 5 lakh crore in India. It is projected to expand at a rate of 10-15% over the next five years.
As for the sub-segments, the Indian tea market is pegged at Rs 27,300 crore (70% being branded business). The branded coffee market is worth Rs 2,600 crore with instant coffee comprising 80-85% of the sub-segment.
Talking about the other two key product lines of Tata Consumer Products Ltd, the branded salt and packaged water industries are estimated to be worth Rs 6,900 crore and Rs 18,000 crore respectively.
Globally, hot tea and hot coffee are mature markets worth $ 45 billion and around $ 90 billion respectively.
Going forward, a multitude of factors such as rising income levels, preference for premium products, increasing penetration, and consumer preference for packaged foods will contribute to the growth of these industries.
Segment Analysis
Tata Consumer Products Ltd segregates its businesses into branded and non-branded segments. The branded division is engaged in the sale of coffee, tea, water, and other packaged food products. The other non-branded segment houses the plantation and extraction of tea, coffee, and other products.
The table below presents the revenue share of different operating segments of Tata Consumer Products.
| Operating Revenue Segments Share | FY22 | FY21 |
| India branded business | 63.49 | 60.20 |
| International branded business | 26.76 | 30.16 |
| Non-branded business | 9.74 | 9.65 |
Next, the table below highlights the share of profit before interest and taxes (PBIT) of various divisions of the company. We can see non-branded business is a low-margin division against the international branded business being high margin.
| Segment PBIT Share | FY22 | FY21 |
| India branded business | 63.92 | 61.07 |
| International branded business | 30.23 | 32.59 |
| Non-branded business | 5.85 | 6.34 |
From the information above, we can conclude that food and beverages are a vast market with ample opportunities for branded and well-known players like Tata Consumer Products Ltd. In the sections ahead, we’ll read about the financials of the stock as part of our fundamental analysis of Tata Consumer Products.
Tata Consumer Products – Financials
Revenue & Net Profit Growth
Over the last six years, the revenues and net profit of TCPL have grown at a CAGR of 10.62% and 14.32% respectively. The company generated a net profit of Rs 1,015 crore on sales of Rs 12,425 crore in FY22.
In the last three years, the P&L items are higher also on the account of merger of the consumer business of Tata Chemicals and Tata Global Beverages. Overall, the sales have increased led by volume and value growth over the years.
The table below shows the operating revenue, operating profit, and net profit of Tata Consumer Products for the last six years.
| Fiscal year | Operating revenue | Operating profit | Net profit |
| 2022 | 12,425 | 1,471 | 1,015 |
| 2021 | 11,602 | 1,315 | 930 |
| 2020 | 9,637 | 1,069 | 460 |
| 2019 | 7,252 | 715 | 457 |
| 2018 | 6,815 | 735 | 557 |
| 2017 | 6,780 | 675 | 455 |
| 6-yr CAGR | 10.62% | 13.86% | 14.32% |
Operating & Net Profit Margins
The margins of the company have improved in the last two years as the company returned to pre-pandemic sales levels. Additionally, being in the secular industry, the company is able to increase prices to pass on increased costs to its customers helping it to keep margins stable.
The table below shows the profit margins of the company for the last six fiscals.
| Fiscal year | OPM | NPM |
| 2022 | 11.84 | 8.17 |
| 2021 | 11.33 | 8.02 |
| 2020 | 11.09 | 4.77 |
| 2019 | 9.86 | 6.30 |
| 2018 | 10.78 | 8.17 |
| 2017 | 9.96 | 6.71 |
Return Ratios: RoE & RoCE
Talking about the return ratios of the business, return on capital employed (RoCE) and return on equity (RoE) stood at 32.80% and 6.36% respectively.
The significant discrepancy in the two return ratios can be attributed absence of financial leverage, high operating leverage, and significant goodwill account balance. Tata Consumer Products Ltd’s balance sheet accumulated goodwill over the years because of the acquisitions of various companies in the past.
The table below shows the return ratios of Tata Consumer Products Ltd for the past few financial years.
| Fiscal year | RoCE | RoE |
| 2022 | 32.80 | 6.36 |
| 2021 | 34.70 | 6.10 |
| 2020 | 26.20 | 4.00 |
| 2019 | 19.60 | 5.60 |
| 2018 | 24.50 | 7.30 |
| 2017 | 20.90 | 6.40 |
Debt/Equity & Interest Coverage
Moving on to the leverage analysis of the F&B major, it is almost a debt-free stock with a minimal debt-to-equity ratio of 0.07. Its interest coverage ratio stood at an adequate 25.54 times for FY22.
The table below highlights the improvement in the leverage position over the past six years.
| Fiscal year | Debt/Equity | Interest Coverage |
| 2022 | 0.07 | 25.54 |
| 2021 | 0.05 | 24.24 |
| 2020 | 0.09 | 14.92 |
| 2019 | 0.15 | 15.64 |
| 2018 | 0.15 | 19.11 |
Future Plans of Tata Consumer Products
So far we only looked at the previous years’ data for our fundamental analysis of Tata Consumer Products. In this section, we’ll try to make sense of what lies ahead for the company and its shareholders.
- During FY22, Tata Consumer Products Ltd launched more products/SKUs across various product categories including salt, tea, breakfast cereal, dry fruits, and ready-to-drink liquids. These new product launches are expected to fetch higher sales in the coming years.
- Recently, Tata Consumer Products Ltd acquired Tata SmartFoodz from Tata Industries for Rs 395 crore to bring TataQ, the signature ready-to-eat brand under its umbrella.
- The company is also undertaking restructuring activities to simplify the legal holding structure and unlock potential synergies.
Fundamental Analysis of Tata Consumer Products – Key Metrics
We are almost at the end of our fundamental analysis of Tata Consumer Products. Let us take a quick look at the key metrics of the stock.
| CMP | ₹711 | Market Cap (Cr.) | ₹66,000 |
| EPS | ₹12.5 | Stock P/E | 62.6 |
| RoCE | 32.80% | RoE | 6.36% |
| Promoter Holding | 34.4% | Book Value | ₹160 |
| Debt to Equity | 0.07 | Price to Book Value | 4.43 |
| Net Profit Margin | 8.17% | Operating Profit Margin | 11.84% |
In Conclusion
The stock of Tata Consumer Products has returned an impressive 165% in the last five years because of the various developments that have taken place at the company. But as the company ramps up its distribution to semi-urban and rural areas, the outlook remains strong for the stock.
Do you think new product launches and expansion of the distribution network will manifest as higher earnings and subsequently higher returns for shareholders in the coming quarters? How about you tell us your views on the stock in the comments below?
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