Synopsis: ICICI Securities is optimistic about Tata Consumer Products Ltd (TCPL), citing growth opportunities through portfolio premiumization, regional expansion, and inflationary benefits. Tata Starbucks’ ambitious goal of expanding to 1,000 stores by FY28 is deemed achievable.
ICICI Securities remains positive on the stock of Tata Consumer Products Ltd (TCPL), seeing a potential for significant growth in the company's revenue and profitability in the coming years.
While TCPL’s revenue per store has stagnated over the past decade, there are several factors at play that could contribute to future growth, including premiumization of the portfolio, regional expansion into areas with less competition, and inflationary benefits.
Tata Starbucks Expansion Plan:
One of the key drivers of growth for TCPL is the ambitious expansion of Tata Starbucks, a joint venture between Tata Consumer and Starbucks Corporation.
ICICI Securities highlighted Starbucks India's plan to more than double its store count to 1,000 outlets by FY28, which it views as an ambitious but achievable target.
The brokerage firm believes this goal is spurred by the exit of Café Coffee Day, creating a vacuum in the market, as well as the rise of new competitors like Blue Tokai and Third Wave.
However, ICICI Securities points out that Tata Starbucks holds a more premium position in the market compared to these emerging competitors.
Tata Starbucks has consistently maintained a gross margin of over 65% during FY14-24, with improvements driven by economies of scale and stable commodity prices.
The company’s bargaining power with suppliers has also increased, contributing to this margin stability.
Additionally, the cost of goods sold as a percentage of sales for Tata Starbucks remains in line with that of Starbucks Corporation at 31-32%, while employee costs are lower in India compared to its global counterpart.
ICICI Securities projects Tata Starbucks to achieve an EBITDA margin of 20%, slightly higher than Starbucks Corporation's 18%, reflecting its efficient operations and strong market positioning.
The brokerage firm values Tata Starbucks at an enterprise value of ₹21,100 crore, with an EBITDA multiple of 24 times.
This translates to a contribution of Rs. 91 per share to TCPL's overall valuation.
TCPL’s Revenue and Profitability Projections:
ICICI Securities also expects TCPL to report healthy growth in revenue and profitability over the next few years.
They are forecasting a compounded annual growth rate (CAGR) of 15.8% in revenue and 18.9% in profit after tax (PAT) over FY24-26E.
This growth will be supported by an improvement in profitability in India Foods, as well as a revival in the international business.
Despite the stagnation in revenue per store over the past decade, there is potential for improvement as TCPL continues to premiumize its product portfolio and expand into regions with lower competitive pressures.
The brokerage firm remains optimistic, maintaining a “BUY” rating on Tata Consumer with an unchanged target price of Rs. 1,385.
Operational Efficiency:
One of the standout aspects of Tata Starbucks' operations is its ability to maintain low working capital requirements.
The business has consistently maintained negative working capital days, reflecting strong operational efficiency.
The average creditor days for Tata Starbucks over FY21-23 were 101 days, showcasing its ability to leverage its strong brand equity to optimize payment terms with suppliers.
In conclusion, Tata Consumer Products Ltd. is poised for growth, with its partnership in Tata Starbucks playing a pivotal role.
The expansion of Tata Starbucks, coupled with the premiumization of TCPL’s portfolio and the operational efficiencies in place, sets a strong foundation for future growth.
With steady improvements in profitability and revenue projections, ICICI Securities continues to recommend a "BUY" rating on the stock, suggesting that investors consider this a potential long-term investment opportunity.
Disclaimer: This article is for informational purposes only and should not be construed as financial or investment advice. Readers are advised to consult with a qualified financial advisor before making any investment decisions.
