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TATA CONSUMER: CMP: 960 | Long term Gr: 12% , H1Fy25 Gr: 15%
(New Acquisitions & Merger to attract strong growth further)
Company:
Tata Consumer Products is an Indian Multinational fast-moving consumer goods company and a part of the Tata Group. It is the world's second-largest manufacturer and distributor of tea and a major producer of coffee. Formerly known as Tata Global Beverages Limited (TGBL), Tata Consumer Products was formed when the consumer products business of Tata Chemicals merged with Tata Global Beverages in February 2020. The company now operates in the food and beverages industry, with ~75% of their revenue coming from India while the rest is from their international businesses. After the merger, the company controls Indian and international brands like Tata Salt, Tata Tea, Tetley, Eight O'Clock Coffee, Good Earth Tea, Tata Sampann, Himalayan water and Tata Starbucks. Tata Tea is the biggest-selling tea brand in India. Tetley is the biggest-selling tea brand in Canada and the second-biggest-selling in the United Kingdom and the United States.
#### Industry Overview**
The global beverage and foods industry is competitive, with challenges such as fluctuating raw material prices, changing consumer preferences, and regulatory pressures. The tea and coffee markets are influenced by climatic conditions, affecting production and prices. The packaged foods sector is growing, driven by increasing urbanization and demand for convenience foods.
#### **Peer Group Analysis**
Key competitors in the beverage and foods industry include:
- Hindustan Unilever Limited
- Nestle India Limited
- ITC Limited
- Britannia Industries Limited
#### **Historical Performance**
Over the past few years, Tata Consumer Products has shown consistent growth in revenue and profitability, driven by strategic acquisitions and expansion into new markets. The integration of acquired businesses has been a focus, with ongoing efforts to leverage synergies and streamline operations.
History:
In 1983, Tata Tea bought the stake belonging to the James Finlay group to form the individual entity Tata Tea. In the same year, the company decided to move from the commodities business to consumer branding. The first brand Tata Tea was introduced. In spite of being the largest market in the world, the concept of branded tea took time to be accepted. In 1987, Tata Tea set up a fully owned subsidiary, Tata Tea Inc., in the United States. In the 1990s, Tata Tea decided to take its brands into the global markets. It formed an export joint venture with Britain's Tetley Tea in 1992. Other new enterprises included a majority interest in Consolidated Coffee Ltd. (Tata Coffee Ltd.) and a joint venture to manage agricultural estates in Sri Lanka. They entered into a joint venture with Allied Lyons PLC in the UK to form Estate Tata Tetley. In the mid-1990s, Tata Tea attempted to buy Tetley and the Lankan JVC acquired 51% shareholding in Watawala Plantations Ltd. By 1999, Tata Tea's brands had a combined market share of 25% in India. Tata Tea acquired the Tetley Group (based in the United Kingdom) in 2000. It was a £271 million ($432 million) leveraged buyout. Tata Tea reportedly outbid the American conglomerate Sara Lee in what was described, at the time, as the largest takeover of a foreign company by an Indian company. At the time, Tetley was the world's second-largest tea company after Unilever's Brooke Bond-Lipton and had an annual turnover of £300 million. It was the market leader in Britain and Canada and a popular brand in the United States, Australia and the Middle East. Established in 1837, Tetley was the first British tea company to introduce the tea bag to the UK in 1953. Tetley now contributes around two-thirds of the total turnover of Tata Tea. In 2006, Tata Tea acquired Eight O'Clock Coffee, a U.S.-based coffee producer from Gryphon Investors for $220m. On 30 January 2012, Tata Consumer Products Limited and Starbucks announced the creation of a 50:50 joint venture called Tata Starbucks Limited, which will own and operate Starbucks outlets branded as Starbucks Coffee `A Tata Alliance" in India. The stores started operating in 2012, launching initially in Delhi and Mumbai. The coffee shops source coffee beans from Tata Coffee, a subsidiary company of Tata Consumer Products Limited. On May 15, 2019, Tata Chemicals Limited (TCL) announced the demerger of the Consumer Products Business of TCL and into TGBL to become Tata Consumer. In the beverages business, Tata Consumer brands include Tata Tea, Tetley, Vitax, Eight O’Clock Coffee, Himalayan Natural Mineral Water, Grand Coffee and Joekels. In the food segment, the brands include Tata Salt and Tata Sampann. Tata Global Beverages Limited (TGBL) and Tata Chemicals Limited (TCL) announced that the Scheme of Arrangement between TGBL and TCL regarding the Consumer Products Business of TCL is now operational, effective from 7 February 2020. Following this, TGBL has been renamed Tata Consumer Products Limited. Tata Consumer Products combines the food and beverages brands, which include Tata Salt, Tata Tea, Tata Sampann, Tetley, Soulfull and Himalayan mineral water, under a single umbrella. Tata Consumer Products acquired complete control of Tata Smart Foodz Limited from Tata Industries Limited for ₹395 crore on 12 November 2021. On 1 May 2022, Tata Consumer Products announced that Tata Coffee would merge with itself as part of a reorganisation plan. The company stated that the merger was expected to be completed in late 2023 & has just recently completed. In July 2022, Tata Consumer Products launched premium honey products and flavoured preserves, under the company's Himalayan brand name. Also in July 2022, the company launched plant-based meat products under the brand name, Tata Simply Better.
Considering all the above changes we saw during the past many decades the era when the company was known as Tata Global during the year 2002 was doing the revenue of 3000 Cr with the Profits of 99 cr. We saw the company growing to sales of around benchmark 15000 Cr and Profits of 1320 Cr. Tea Coffee generally does not grow with double digits, but other new age businesses could grow well. Hence post becoming Tata Consumer we saw good growth due to focus on the packaged food industry.
Q2 FY25 Comprehensive Analysis - Tata Consumer Products
Sales and Profit Growth
Revenue: ₹4,214 Cr (📈 +13% YoY 🟢)
EBITDA: ₹629 Cr (📈 +11% YoY 🟢)
Net Profit: ₹367 Cr (📈 +3% YoY 🟢)
EBITDA Margin: 14.9% (📉 -30bps YoY 🔴)
EPS (Basic): ₹3.98 (📈 +5.9% YoY 🟢)
PBT (before exceptional items): ₹388 Cr (📉 -16% YoY 🔴)
Segment-wise Sales Data and Growth
India Beverages:
Revenue: ₹1,380 Cr (📉 +3% YoY / -4% organic 🔴)
Tea volumes declined 4% YoY 🔴
India Foods:
Revenue: ₹1,368 Cr (📈 +28% YoY / +9% organic 🟢)
Salt revenue grew 2% with flat volumes; value-added salt +26% 🟢
International Business:
Revenue: ₹1,017 Cr (📈 +7% YoY 🟢)
Ready-to-Drink (RTD):
Revenue: ₹154 Cr (📉 -11% YoY 🔴)
Additional Financial Ratios
Net Profit Margin: 8.7% (📉 -100bps YoY 🔴)
Debt to Equity Ratio: 0.13 (🟢 indicating a low level of debt relative to equity)
Return on Equity (ROE): 11.2% (📉 due to lower net profit growth 🔴)
Current Ratio: 1.85 (🟢 indicating a strong liquidity position)
Return on Capital Employed (ROCE): 14.5% (📈 showing good capital efficiency 🟢)
Asset Turnover Ratio: 1.35 (reflecting efficient asset utilization 🟢)
Tata is gaining market share in branded tea, salt, and coffee despite competitors' strongholds in other product categories 🟢.
The acquisition of Capital Foods and Organic India strengthens Tata’s position in the growing health and organic products market 🟢.
Tea prices surged by 28% YoY, impacting profitability in the beverage segment 🔴.
Despite these challenges, Tata Consumer is expanding internationally and focusing on growth businesses like organic foods and premium beverages 🟢.
Company's Future Outlook
Digital Innovation: Tata is pushing for digital transformation, investing in e-commerce platforms and direct-to-consumer strategies 🟢.
Sustainability Initiatives: Tata Consumer is incorporating sustainability across its supply chain 🟢.
Acquisitions Driving Growth: Capital Foods and Organic India are showing strong QoQ growth of 25% and 45%, respectively 🟢.
Eagle Eye View for Investors
📉 Challenges:
Tea volumes dropped 4% due to rising input costs 🔴.
The RTD segment experienced an 11% decline in revenue due to unfavorable weather 🔴.
💼 Strategic Focus:
Acquisitions driving growth, with Capital Foods and Organic India contributing significantly (📈 25% and 45% QoQ growth 🟢).
Strong focus on digital transformation and sustainability initiatives 🟢.
📅 Looking Ahead:
Focus on merging subsidiaries to boost efficiency 🟢.
Expanding into pharma and food service channels for future growth 🟢.
Tata Starbucks is growing rapidly, now with 457 stores across 70 cities in India 🟢.
📢 Investor Takeaway:
Tata Consumer Products is well-positioned to grow despite challenges in the tea business 🔴. The company is focusing on core segments, acquisitions, and driving innovation in digital and sustainability initiatives 🟢. Expect steady growth in the coming quarters, backed by a diversified portfolio 🟢.
#### **Future Estimates**
We may see 12% sales growth and 11% Profit growth this year. All those holding since long can add more during any fall near 808 while some 5% profit booking can be during the rally near 1616 in the next 3 years. Overall multiyear rally could be seen along with high and consistent profitability. We may see 12% sales growth even in the future. The company may reach the landmark 50000 Cr sales till fy_2035. LIC just added 2.5 Cr shares during the last 2 Years in their already existing shares of 4.7 Cr shares.
Full Report will be published soon:
