Why Motilal Oswal Says Tata Consumer Can go Up 13%

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Why Motilal Oswal Says Tata Consumer Can go Up 13%

By Aditya Raghunath

Investing.com -- In 2020, tea production in India declined by 10%, which led to a price hike. This caused Tata Consumer’s margins to contract in the last four quarters. As tea prices have declined now, down 32% from their peak in August 2020 to Rs 175/kilogram in August 2021, Tata Consumer’s gross margin should improve from Q2 FY22.

According to Motilal Oswal (NS: MOFS ), in FY21, Tata Consumer Products consolidated revenue grew 20% YoY, driven by volume growth of 12% and 11% in India Beverages and Foods respectively and tea price inflation. Operating leverage and lower ad expenditure aided EBITDA growth of 19% YoY in FY21. The prices are likely to taper down in the near term and bodes well for Tata Consumer Products.

The company is building Tata Sampann, which deals in pulses and spices. The market size for pulses/spices in India currently stands at Rs 1,500/billion and Rs 600 billion. Growth is expected through the capture of market share from unorganized players via an increasing distribution reach and new product launches. The unlocking of sales and distribution synergies from the merger of group companies has started to yield results.

The brokerage expects a sales/EBITDA/PAT CAGR of 10%/18%/23% over FY21-24E. The brokerage has maintained a buy rating on the stock with a target price of Rs 1,000.

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