Consumer

Expects 2 Year Revenue CAGR to be in double digits: Godrej Consumer Products

Update on the Indian Equity Market:

On Thursday, NIFTY closed higher at 17,800(+0.9%). Top gainers in NIFTY50 were TATAMOTORS (+12.6%), TITAN (+10.5%), and M&M (+4.9%). The top losers were ONGC (-4.4%), DRREDDY (-1.3%), and COALINDIA (-0.96%). The top gaining sectors were REALTY(+6.2%), CONSUMER DURABLES (+5.2%), and AUTO (+4.4%), while OIL & GAS (-0.3%) was the only losing sector.

Edited excerpts of an interview with Mr. Sameer Shah, Chief Financial Officer, Godrej Consumer Products with CNBCTV18 on 6th October 2021:

  • The company expects high single-digit growth in 2QFY22E and a gradual recovery in 2HFY22E.
  • The company is witnessing consumer offtakes for stapes and discretionary relatively strong.
  • At the beginning of the year, Company had laid out the ambition of double-digit sales growth. It is on track and expects to see the same for 2HFY22E.
  • Staples continued its growth momentum and discretionary or out-of-home categories continued to see an uptick.
  • The hygiene category is expected to normalise at levels much higher than pre-COVID, but not at the peak of COVID levels.
  • The company expects rural consumption and its growth momentum to be strong for the medium term. More importantly, the consumer offtake is looking robust.
  • The company expects international performance to be mixed. Challenging macro-economic variables are impacting the performance.
  • In countries like Indonesia the vaccination is picking up but the recovery is slow as compared to countries like India. The overall consumption has been relatively muted. Gradual recovery is expected for the rest of the year and over a period of time to reach double-digit growth.
  • In Africa, double-digit growth is seen since the last 5-6 quarters and the company expects this growth momentum to continue in the medium term.
  • The commodities prices are at their peak especially the agri-commodities. The prices of Palm oil which is a key ingredient for the personal wash category and crude which is an indirect derivative and key ingredient for packaging material are at their peak.
  • The company believes the input cost is transient, it is taking calibrated price increases and working on cost-saving programs. It thinks scale leverage and premiumization should mitigate the high input cost impact partly if not fully.
  • On an annual basis, the company expects margins to be marginally lower than 21% levels.
  • The company plans to focus on double-digit sales growth. Once revenue growth is achieved and input cost normalizes, margins are expected to move up.
  • Mr. Sudhir Sitapati to take over as Managing Director and Chief Executive Officer on 18-Oct-21.
  • The company wants to stretch its play in the personal care space, some steps are already taken by the company in this direction, and wants to continue to expand in the next 3-4 years.
  • Advertisement costs would be a mix of digital and traditional mass-market media like television and print.
  • The advertisement spends are in the range of 10-12% in India, another growth pivot has always been innovation which needs a lot of awareness among consumers. Directionally, the company does believe the ad spends could go up.
  • New launches drive premiumization and the company sees an increase in budgets of ad spends in the next 12-18 months.

Asset Multiplier Comments

  • We think the company has been performing consistently well in various large categories. New product launches, premiumization and increasing advertisement spends will likely support the sales and margin growth.
  • We believe the company continues to focus on multiple building blocks and will be able to drive profitable and sustainable sales growth in the medium term.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Godrej Consumer Products was ₹ 1,030/- as of 07-Oct-21. It traded at 54x/46x/40x the consensus EPS estimate of ₹ 19/22.1/25.2 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,093/- implies a PE multiple of 43xon FY24E EPS of ₹ 25.2/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Focusing on expanding ‘ready to eat’ product portfolio- Tata Consumer Products

Update on Indian Equity Market:

On Tuesday, the benchmark Nifty 50 index ended at a record closing of 17,562 (+0.9%). The top gainers on the index were JSWSTEEL (+6.0%), ONGC (+5.2%), and BAJAJFINANCE (+5.1%). The laggards were led by MARUTI (-2.5%), BPCL (-1.47%), and HEROMOTOCO (-1.2%). Among the sectoral indices, REALTY (+3.6%), METAL (+2.6%), and IT (+1.9%) led the gainers while AUTO (-0.5%), CONSUMER DURABLES (-0.2%), and PSU (-0.1%), led the losers.

Excerpts of an interview with Mr. Sunil D’Souza, MD & CEO, Tata Consumer Products on 20 September 2021 with Economic Times:

  • Tata Consumer is seeing a month-over-month recovery in its packaged and out-of-home businesses on the back of higher consumer confidence and people venturing out. Packaged and out-of-home businesses are expected to recover to pre-pandemic levels.
  • Tata Consumer translates about 75% of their costs into the price. As the curve on cost starts coming down, margins will improve. The improvement will be visible on a quarter-on-quarter basis which is already visible in Q1FY22 vs Q4FY21.
  • The company is committed to delivering double-digit growth through portfolio growth, brand strengthening, and cost synergies. The company will maintain a tight focus on costs. This strong top-line growth will be driven by portfolio mix, pricing power, market share, cost reduction which then will translate into the bottom line.
  • Tea prices in September-20 were roughly 70% – 80% higher than September-19 during the disruption. As things settled down tea prices declined. The second spike in tea prices was observed in June-21.
  • Tea is a big part of the business; the company expects a gradual shift from unbranded to branded tea on the back of rising consumer income. In India, over 30-40% of the tea is unbranded. They aim to double their direct reach in 12 months and indirect reach in 36 months. They are on track to deliver of doubling their reach in 12 months. By end of September 2021, the company will be north of a million outlets covering directly.
  • The company has increased focus on brand strengthening by increasing ad & promotion expenditure by 50% YOY in 1QFY21 creating consumer pull towards the brands.
  • The company has initiated a series of launches with the most recent being Chakra Care and Gold care.
  • Tata Sampann products offer quality nutrition for which they are priced at a premium, providing a good price-value equation to the consumer.
  • Currently, the share of ‘ready to eat products’ is 5% of the revenue. As Convenience is a huge factor, Tata Consumer is looking forward to expanding their ‘ready to eat’ product portfolio by launching differentiated products in the organic and inorganic categories.
  • Tata consumer bought Soulfull as there is a huge opportunity to expand it. Soullfull has a great brand built and they have mastered how to treat millets and make great products out of millets. After the acquisition, the number of outlets that they used to service has increased to 50,000 from 10,000 outlets.
  • E-commerce sales were 2.5% of the total revenue pre-pandemic which grew to 5% in Mar-21 and 7% in June-21.
  • The company has launched its flagship stores in Mumbai and Delhi. They are trying to perfect the whole mix. Once they perfect it they’ll launch it across India.
  • In FY21 Starbucks added equal number of outlets as in FY20 and expects to continue the momentum. They were severely impacted by both the waves during the pandemic. However, the last 2 months were better and the company is already starting to see growth beyond pre-pandemic.

Asset Multiplier Comments

  • Tata consumer has been expanding into different FMCG segments with differentiated premium products giving it an advantage over its competitors.
  • A strong digital presence and product customization to meet the demands of diverse geographies will fuel future revenue development in the coming years.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Tata Consumer Products was ₹ 860/- as of 21-Sept-2021. It traded at 72x/61x/48x the consensus EPS estimate of ₹ 12/14/18 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 779/- implies a PE multiple of 43x on FY23E EPS of ₹18/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Will keep investing to grow the household insecticides market – Godrej Consumer

Update on the Indian Equity Market:

On Monday, NIFTY closed 0.1% lower at 17,355. Top gainers in NIFTY50 were COALINDIA (+3.9%), HINDALCO (+3.3%), and KOTAKBANK (+1.7%). The top losers were RELIANCE (-2.3%), ICICIBANK (-1.8%), and SBILIFE (-0.9%). The top gaining sectors were MEDIA (+1.3%), METAL (+1.3%), and IT (+0.9%) while the top sectoral losers were BANK (-0.6%), PRIVATE BANK (-0.5%), and PSU BANK (-0.4%).

Will keep investing to grow the household insecticides market – Godrej Consumer

Excerpts of an interview with Mr. Sunil Kataria, CEO- India & SAARC at Godrej Consumer Products (GODREJCP), aired on CNBC TV18 on 9th September 2021:

  • Input cost inflation has not slowed down against the expectation that the inflation would come down in the July-August period. Current inflation pressures may remain for another 6 months.
  • Demand is holding steady currently. Rural demand was strong even in the 1st wave of covid-19. The positive thing now is that urban demand has also seen a sharp recovery.
  • Discretionary demand has come back strong. Provided the festive season does not get disrupted and continued ramp-up of vaccination, further growth should be possible.
  • GODREJCP is taking calibrated price increases in some products to mitigate the higher input cost prices. Further mitigation is being done via overhead cost control. GODREJCP has taken 7%-8% price hikes so far in FY22.
  • Management expects to maintain EBITDA margins in the 25%-26% band. This operating performance will be delivered without compromising on ad spends. Ad spends are an important investment in brand building.
  • The core business of soaps and household insecticides had strong tailwinds in FY21 and did not suffer due to the covid-19 disruption.
  • Discretionary items like hair color and hair care faced a challenge in 1HFY21 but came back strongly in 2HFY21.
  • Management expects both- core and discretionary categories to perform well going forward. Mr. Kataria expects overall double-digit growth across all categories.
  • GODREJCP is seeing big momentum in personal wash and hygiene so increasing capacity additions there. But capex outlay is not an issue for a cash-rich FMCG business.
  • Being the market leader in household insecticides, GODREJCP will undertake continued investments in increasing product portfolio and brand building in household insecticides.

Asset Multiplier comments:

  • Consumer staples, as well as discretionary companies across board, have been taking price hikes to mitigate the impact of input cost pressure. However, all managements are taking a calibrated approach as demand is still a bit fragile in some product baskets due to the economic impact of lockdowns.
  • How the rural demand shapes up from here remains to be seen as the covid-19 2nd wave has impacted rural India more than the 1st

Consensus Estimate: (Source: market screener websites)

 

  • The closing price of GODREJCP was ₹ 1,119/- as of 13-September-2021.  It traded at 59x/51x/44x the consensus earnings estimate of ₹ 19.0/22.0/25.2 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,058/- which trades at 42x the earnings estimate for FY24E of ₹ 25.2/-

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Recovery on cards, high volume growth ahead – Marico

Update on Indian Equity Market:

On Wednesday, markets ended flat with Nifty closing 9 points lower at 17,354. KOTAKBANK (+3.6%), POWERGRID (+1.8%), and GRASIM (+1.6%) were the top gainers on the index while DIVISLAB (-2.4%), NESTLEIND (-2.4%), and WIPRO (-1.7%) were the top losers for the day. Among the sectoral indices, BANK (+0.8%), PRIVATE BANK (+0.7%), and CONSUMER DURABLES (+0.7%) were the top gainers, while IT (-0.8%), MEDIA (-0.6%), and AUTO (-0.5%) were the laggards.

Excerpts of an interview with Mr. Saugata Gupta, MD, and CEO at Marico on CNBCTV18, dated 07th September 2021:

  • Marico’s portfolio is concentrated on items of daily use, which saw a faster recovery in June itself. The entire FMCG sector is witnessing volume recovery due to its inherent nature and the company expects 8-10% volume growth for H2FY22. 
  • The company expects a muted 3rd wave if it occurs on the back of rapid vaccinations and an adequate monsoon which will help demand to improve significantly.
  • The only issue that the company expects to face is rising inflation in its input costs. However, the company believes this won’t persist beyond Q3FY22 and that it will see an eventual softening in raw material prices.
  • The company expects that it’ll meet its revenue targets of Rs. 4.5-5 bn in FY22 and double them to Rs. 8.5-10 bn by FY24 on the back of strong growth drivers like diversification and premiumisation. 
  • The company is on track to meet its diversification targets, with the discretionary food segment demonstrating robust recovery. Now the company plans to focus on premiumisation in Personal Care and digital brand growth.
  • Digital Brands are an important segment for the company. Its recent acquisition of Beardo Brand is now fully integrated, and the company plans to expand into a couple of more digital brands either organically or inorganically.
  • The worst margin pressure for the company is over as Copra prices (a key raw material for the company) have settled down. The company expects vegetable and other oil prices to cool off towards Q3FY22 and EBITDA margins to reach a comfortable 19-20% level.

Asset Multiplier Comments:

  • The food and FMCG Industry has adapted to the pandemic imposed changes. Despite the pandemic, the volumes have improved and may recover sharply soon with further unlocking. With an expanding product portfolio, the growth rates may be significantly higher.
  • Marico has an established portfolio, brand awareness with consumers, and a focus-induced approach to premiumisation which it can leverage to expand volumes to grow further and deliver value to shareholders.

Consensus Estimates (Source: market screener website): 

  • The closing price of Marico was ₹563/- as of 08-September-2021.  It traded at 56x/47x/40x the EPS estimates of ₹10/ 12/ 14  for FY22E/23E/24E.
  • The consensus price target is ₹ 600/- which trades at 43x the EPS estimate for FY24E of ₹ 14/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expects double-digit growth in India foods biz – Tata Consumer

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.2% up at 16,295. Top gainers in NIFTY50 were BHARTIARTL (+3.9%), EICHERMOT (+3.5%), and ITC (+3.1%). The top losers were SBIN (-3.3%), INDUSINDBK (-2.3%), and ICICIBANK (-1.8%). The top gaining sectors were METAL (+1.3%), IT (+0.8%), and FMCG (+0.6%) while the top sectoral losers were PSU BANK (-2.2%), MEDIA (-1.6%), and REALTY (-1.1%).

 

Expects double-digit growth in India foods biz – Tata Consumer

Edited Excerpts of an interview with Mr. Sunil D’Souza, Managing Director and Chief Executive Officer, Tata Consumer Products with CNBCTV18 on 4th Aug, 2021:

  • Tata Consumer delivered a decent 1QFY22 results led by strong domestic business performance. The gross margins were primarily affected due to high tea prices.
  • Even though the tea prices are high, management is comfortable going forward as the spike in tea prices is once in 5-10 years phenomena.
  • In 2QFY21 the prices were at peak and thereafter the prices have started to normalize. This gets reflected in margins of India Tea Business as it has improved from 19% in 2QFY21 to 26% in 1QFY22 and will continue the uptrend for couple of quarters.
  • The combination of price hike taken and tea prices going down will keep the company in good shape. The basic building blocks put in place and execution parameters lead the company to greater confidence.
  • Working capital is down by 2 days, free cash flow is 101% of EBITDA (excluding one offs), company has 8,20,000 direct outlets and plans to take the number to 1 mn by Sep-21.
  • The advertisement and promotion expenses are up 41% YoY as company plans to focus and strengthen the India brand building.
  • Expects strong double-digit growth for India food business on the back of Salt and “Sampann” portfolio.
  • The market share of Salt is 33-34% as compared to other players still at low single digit. The premium portfolio grew by 34% YoY and the mass category is expected to grow in South market where it is underpenetrated.
  • On margin front, India beverages business is under pressure because of high tea prices. With tea prices normalizing and price increases taken, company expects the margins to improve significantly sequentially.
  • Company is confident of coming out much stronger on the back of stronger share, stronger premium portfolio and better systems on execution in the market.
  • Tata Consumer was formed to fulfill the aspirations of Tata group in the FMCG space. Last 12-15 months have been focused on putting the systems together, building execution systems and getting distribution panel in order.
  • Company plans to expand the portfolio both organically and inorganically. Tata Consumer had acquired NourishCo which has performed well even during lockdowns. Integration of Soulfull has been completed in 1QFY22. The Company is in a strong position with net cash of Rs 21bn available for integration/acquisitions.
  • The contribution of E-commerce to total sales have increased from 2% to 7% currently in 15-18 months’ time. Company expects it to touch double digit soon.
  • Tata Consumer added 45-50 Starbuck stores in FY21 and has an ambitious target for FY22E as well.

 

Asset Multiplier Comments

  • Store expansion, acquisitions & premiumization strategy in salt & tea in India market is expected to drive sales & margins.
  • We believe the company is taking a step in the right direction by increasing the distribution reach, especially to rural areas. Increased distribution coupled with product launches will act as key growth drivers.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Tata Consumer was ₹ 768/- as of 5-Aug-21. It traded at 61x/ 50x/ 42x the consensus EPS estimate of ₹ 12.3/15.1/18.1 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 743/- implies a PE multiple of 41x on FY24E EPS of ₹ 18.1/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Volume recovery on cards, Margins to improve in H2FY22: Marico

Update on Indian Equity Market:

On Tuesday, markets ended higher with Nifty closing 246 points to close at 16,130. TITAN (+4.0%), HDFC (+3.8%), and INDUSINDBK (+3.5%) were the top gainers on the index while JSWSTEEL (-0.8%), SHREECEM (-0.3%), and BAJAJ-AUTO (-0.3%) were the top losers for the day. Among the sectoral indices,  FMCG (1.7%), FINANCIAL SERVICES (1.7%), and AUTO (1.6%) were the top gainers, while MEDIA (-0.8%), METAL (-0.1%) were the only losers.

Excerpts of an interview with Mr. Saugata Gupta, MD & CEO, Marico on CNBCTV18 dated 2nd August 2021:

  • 1QFY22 began with the momentum that was handed over from the last quarter of FY21. May sales were affected due to the 2nd wave of lockdown. Recovery was seen in June, and supply-side issues are slowly improving.
  • Growth rates are improving drastically in the South, which is the company’s stronghold. Barring major disruptions, the company expects to deliver 8-10% volume growth.
  • Gross margins declined both sequentially and YoY. This was due to raw material costs pressure, both in copra and vegetable oil-based products. The company took price hikes which resulted in less pressure on margins.
  • The company expects Copra prices to come down and some deflationary easing on margins and hopes to record 19%+ margins for the rest of the year. 
  • The company makes lower gross margins in the food business and expects margins to improve with scale. The company expects volumes to grow in soya, honey and oodles, and add around 100 crores to the top line.
  • The company’s focus is to add volume growth and expects margins to grow with scale. However, the company expects more product diversification over the next 4-5 years.

 

Asset Multiplier Comments:

  • The food and FMCG Industry has adapted to the pandemic imposed changes. Despite the pandemic, the volumes have improved and may recover sharply soon with further unlocking. With expanding product portfolio, the growth rates may be significantly higher.
  • Marico has an established portfolio and brand awareness with consumers which it can leverage to expand volumes to grow further and deliver value to shareholders.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Marico was ₹544/- as of 03-August-2021.  It traded at 54x/45x the EPS estimate of ₹10/₹ 12 for FY22E/23E.
  • The consensus price target is ₹ 560/- which trades at 47x the EPS estimate for FY23E of ₹ 12/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Decline in palm oil prices is a positive–Godrej Consumer Products

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1% down at 15,728. Top gainers in NIFTY50 were TECHM(+1.4%), SBILIFE (+0.9%), and EICHERMOT (+0.8%). The top losers were TATAMOTORS (-3.5%), JSWSTEEL (-3.1%), and HINDALCO (-2.7%). The only sector to gain was IT (+0.1%) while the top sectoral losers were METAL (-2.2%), PSU BANK (-2.0%), and BANK (-1.4%).

Decline in palm oil prices is a positive–Godrej Consumer Products

Excerpts of an interview with Mr. Sameer Shah, Head- Finance & Investor Relations, Godrej Consumer Products (GODREJCP), aired on CNBC TV18 dated 6th July 2021:

  • GODREJCP released their 1QFY22 business update where they have seen high teens growth in the India business. The growth has been broad-based. There was not much gap between volume and value growth.
  • GODREJCP saw marginal price-led growth due to the Personal wash and Hygiene segment. This segment forms around 40% of India business. GODREJCP is the No. 2 player in the bar soaps category. The market share gain trend in this category has played out in the last few years. There is still some opportunity left to gain more share in the next many years as well.
  • New age formats in Hygiene segments such as handwash, and sanitizers are doing well. There will be some change in consumer habits and there will be a reset in the category size going ahead. GODREJCP has innovative products at attractive price points in this category.
  • As a result of these factors, Personal wash and Hygiene will be an important growth segment for GODREJCP.
  • Household Insecticides form 40% of India business for GODREJCP where the company is a dominant market leader. This segment had double-digit YoY growth in 1QFY22 on a very high base. Management expects the strong momentum to continue in this segment.
  • International business forms 45% of GODREJCP’s overall revenue. In 1QFY22, the performance was mixed across regions. Revenue was flattish in Indonesia due to the 2nd wave of Covid-19. Management remains bullish on gradual recovery through the rest of FY22. The regions of the Middle East, Africa & the USA have shown robust performance for the past 4-5 quarters with a double-digit 2-year CAGR. Regions of LATAM and SAARC which form a smaller 4-5% share also have strong double-digit growth.
  • There is a significant opportunity to increase penetration and market share in rural India. GODREJCP plans to increase its presence in rural India not just through improving distribution but also through affordable products having superior utility.
  • In addition, GODREJCP plans to increase urban reach, increase productivity, and focus on growing currently smaller channels like E-commerce, B2C, and B2B.
  • For inorganic opportunities, GODREJCP will be open to the wider household & personal care space in India, and existing or adjacent to existing categories in Indonesia.
  • Management expects India business to have a 2-year CAGR of low double-digit going ahead.
  • Palm oil prices have declined around 20%+ from the peak. If the trend continues, GODREJCP will not take further price increase which will favorably impact consumption.
  • On the margins front, 1QFY22 India margins could be impacted due to higher palm oil prices during the quarter and lag of passing on costs. However, the margin pressure will be offset by export performance. Going ahead, with palm oil price coming down, operating leverage, and a favorable category mix, management remains optimistic of margin maintenance and possible expansion.

 

Asset Multiplier comments:

  • Several consumer companies have plans to focus and expand their reach in rural India. There is increasing demand from the aspirational middle class in non-metro cities and towns.
  • Reduction in palm oil prices will be a big relief to GODREJCP as their gross margins were affected in the last few quarters due to input cost inflation.
  • A silver lining of the input cost pressure was that GODREJCP managed to gain market share from the smaller unorganized players as they stayed away in the high inflationary environment.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of GODREJCP was ₹ 963/- as of 8-July-2021.  It traded at 52x/ 45x the consensus earnings estimate of ₹ 18.7/ 21.4 for FY22E/23E respectively.
  • The consensus price target is ₹ 946/- which trades at 44x the earnings estimate for FY23E of ₹ 21.4/-

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Aim to double the number of direct outlets in 1 year – Tata Consumer Products

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,338 (+0.2%). Among the sectoral indices, PSU Bank (+2.9%), Bank (+1.2%), and IT (+1.1%) closed higher. Realty (-1.2%), Pharma (-0.2%), and FMCG (-0.01%) closed in the red. Shree Cement (+4.1%), SBIN (+3.1%), and Bajaj Auto (+2.2%) were the top gainers. HDFC (-2.7%), ONGC (-1.5%), and IOC (-1.4%) were among the top losers.

Excerpts of an interview of Mr. Sunil D’souza, MD & CEO, Tata Consumer Products with CNBC-TV18 dated 27th May 2021:

  • Speaking about ROCE, Mr. Sunil D’souza said the aim is to achieve double-digit ROCE by end of FY22E.
  • On tea prices, he said the drought-like conditions have kept the prices up. The tea prices are up ~60% YoY. The estimates suggest the prices will start coming down in 30-60days.
  • The company will resort to gradual price hikes if tea prices do not correct. The aim will be to achieve a 33-35% EBITDA margin on Indian beverages by 2nd half of FY22E.
  • On logistical issues, he said the base tea and salt businesses are growth levers for the company. The Sampann and Soulfull brands are growing in the pantry space. The plan is to increase overall distribution. The target is to double the number of direct outlets in 1 year. The company will achieve 1mn outlets by Sept-Oct 21.
  • On Starbucks, he said it witnessed a 14% revenue growth in Q4FY21 despite operations with 50% seating.
  • Take away and delivery compensated for the affected dine-in capacity.
  • The competitors are under pressure which will benefit Starbucks. The company has added 40 additional stores in FY21 despite the pandemic. There is an expansion in cities and different formats.
  • Speaking about ad spends, he said currently it is ~6% of sales but it will increase to double-digit in the short to medium term. In the FMCG space advertising is important to build brand equity.
  • On the rural segment, he said the 2nd wave has impacted the rural segment as well. For the company it is acting as an opportunity as the share of rural for the company was smaller as compared to competitors. The target is to increase rural distribution to ~9,000 distributors from the current 2,000 distributors in FY22E.

 

Asset Multiplier comments:

  • We believe rising tea prices and increased spends in advertising might put pressure on EBITDA margins in the near term.
  • An increase in the number of direct dealers might lead to better product availability and visibility. It will also help to manage the competition.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Consumer Products Ltd was ₹ 650 as of 27-May 2021.  It traded at 53x/44x the consensus Earnings per share estimate of ₹ 12.1/14.7 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 675/- which implies a PE multiple of 15x on FY23E EPS of 14.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Entry into new categories with Soulfull acquisition – Tata consumer

Update on the Indian Equity Market:

On Thursday Nifty closed 0.7% higher at 14,896. Among the sectoral indices, PSU Banks (+5.9%), FMCG (+2.5%), and Metal (+2.0%) closed higher. IT (-0.4%) was the only sector which closed in the red. SBI (+6.6%), ITC (+6.1%), and Bajaj Finance (+5.0%) closed on a positive note. Asian Paints (-1.9%), UPL (-1.7%), and Cipla (-1.6%) were among the top losers.

Excerpts from an interview of Mr. Sunil D’souza, MD & CEO, Tata Consumer with CNBC-TV18 dated 03rd February 2021:

  • Tea prices have not started to taper off and the company is confident that proper execution will deliver good results in the future.
  • Starbucks and NourishCo Beverages are showing sequential improvement.
  • On ‘Soulfull’ acquisition, he said the Company looked at strategic and financial filters. It will help to get into new categories including snacking, breakfast.
  • This will lead to entry into new consumer occasions. The company was not previously present in these segments.
  • These new products are margin accretive products. EBITDA margins for Soulful are higher as compare to the current basket.
  • Speaking about the tea business, he said the margins are a transient issue. The company has increased its share by 90 bps (Y-0-Y).
  • The company has also integrated its distributor and digitize its system.
  • The account receivables days are down 50% from where the company started.
  • On future acquisitions, he said the company is juggling around different pieces and the announcement will be made when the company gets closer to it.
  • The gross cash of the company is around Rs 2,500 crores, the company makes judicious of the cash. The company around Rs 156 crore cash for the ‘Soulfull’ acquisition.
  • The company expects double-digit growth across financials.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Consumer was ₹ 589 as of 04-February-2021.  It traded at 58x/47x/40x the consensus Earnings per share estimate of ₹ 10.2/12.5/14.7 for FY21E/FY22E/ FY23E respectively.
  • The consensus average target price is ₹ 605/- which implies a PE multiple of 41x on FY23E EPS of 14.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Demand for casual wear is consistent – Bata India

Update on the Indian Equity Market:
On Thursday Nifty closed 0.35% lower at 11,896. Among the sectoral indices NIFTY Media (+0.7%), Metal (+0.7%), and Realty (+0.4%) closed higher. Pharma (-0.9%), IT (-0.7%), and Private Bank (-0.7%) closed lower. Hero Motocorp (-3.03%), Indusind Bank (-2.99%), and ICICI Bank (-1.62%) closed on a negative note. NTPC (+4.1%), Tata Motor (+3.1%), and Bharti Airtel (+2.9%) were among the top gainers.

Excerpts from an interview of Mr. Sandeep Kataria, CEO, Bata with CNBC-TV18 dated 20th October 2020:

● Speaking about demand, Mr. Kataria said things are much better as compared to the past 3-4 months.

● There is a pick up of demand MoM. The company expects to reach normal levels with the festive season coming in.
● Speaking about stores, he said almost all the stores are opened except a few isolated ones.

● People are getting back to the office. Delhi and Gurugram are the cities where traffic is visible.
● Demand for casual wear is consistent and washable slippers.

● Q1 was weak for the company as well as the industry. He expects that the company will reach pre-covid levels towards the end of the festive season.

● Speaking about stores, the company had negotiations with landlords which was helpful. The push of the franchise store in towns below 5 lakh population is showing a good trend and there are a lot of enquires.

● The biggest cost is rentals for the company and the company is taking measures to reduce it.

● The administration and travel costs are also looked closely.

● The company has a strong balance sheet and remain cash positive, there is no worry on that front.

● On post- covid scenario, he said the company is already working on E-commerce and the focus will continue.

● He said tier 2,3 towns are showing a quick bounce back as compared to urban.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Bata was ₹ 1,362 as of 22-October-2020. It traded at 182x/ 46x/ 38x the consensus Earnings per share estimate of ₹ 7.5/29.8/35.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Bata is ₹ 1293/- which implies a PE multiple of 36x on FY23E EPS of ₹35.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”