India Equity Research Consumer Staples August 4, 2021

TATA CONSUMER PRODUCTS

RESULT UPDATE

KEY DATA Rating BUY Robust sequential margin improvement Sector relative Outperformer Price (INR) 768 12 month price target (INR) 880 ’ (TCPL) Q1FY22 revenue (up 10.9% YoY) came Market cap (INR bn/USD bn) 707/9.5 in line with our estimate, but EBITDA (down 17% YoY) surpassed it. Free float/Foreign ownership (%) 65.3/19.5 What’s Changed India beverages business (up 28.2% YoY) was impacted, to some Target Price ⚊ extent, by second wave. India foods grew 19.6% YoY despite a high Rating/Risk Rating ⚊ base and gained market share. International business (down QUICK TAKE 12.7% YoY) slowed due to pantry loading in the base quarter last year. Above In line Below Tata Sampann portfolio grew 12% YoY due to pantry loading in the Profit  base quarter, bringing the two-year CAGR to ~30%. Margins  Revenue Growth  The new leadership has infused vigour in execution. And, on the Overall  whole, we remain positive on the stock over the medium to long term.

Maintain ‘BUY’ with TP of INR880. FINANCIALS (INR mn) Robust domestic revenue growth; margin improves QoQ Year to March FY21A FY22E FY23E FY24E What we liked: India beverages and food businesses recorded strong double-digit Revenue 1,16,020 1,33,392 1,49,548 1,66,213 growth and tea and salt made market share gains of 170bps and 370bps, EBITDA 15,438 19,342 23,329 27,591 Adjusted profit 8,873 12,548 15,580 18,742 respectively. On two-year basis, revenue and EBITDA grew 25.7% and 13.8%, Diluted EPS (INR) 9.6 13.6 16.9 20.3 respectively. E-commerce recorded significant growth of 153% YoY and contributed EPS growth (%) 20.8 41.4 24.2 20.3 7.3% to domestic sales. India foods business registered 19.6% YoY revenue growth RoAE (%) 6.3 7.9 9.3 10.6 and 17% YoY volume growth despite a high base. The company is witnessing V P/E (x) 79.7 56.4 45.4 37.7 shaped recovery since the later part of June. Consolidated gross and EBITDA margin, EV/EBITDA (x) 44.1 35.3 29.1 24.3 Dividend yield (%) 0.5 0.8 1.0 1.2 though down YoY, improved 153bps and 339bps, respectively, QoQ; possibly worst is now behind, in our opinion.

PRICE PERFORMANCE What we did not like: International business dipped (down 12.7% YoY), reverting to pre-covid demand trends in tea and coffee as there is no more pent-up demand or 800 54,000 pantry loading. 725 50,400 650 46,800 575 43,200 Q1FY22 conference call: Key takeaways 500 39,600 Tea prices have further come off INR20-30 since June end hence margin should 425 36,000 continue to improve QoQ. Demand in July has come back stronger than June. In Aug-20 Nov-20 Feb-21 May-21 Aug-21 terms of Sampann, biggest traction is in poha, followed by Pulses and then spices. TATACONS IN EQUITY Sensex

Outlook and valuations: Favourable tide’s brewing; maintain ‘BUY’ Explore: TCPL’s base businesses of salt and tea should provide steady revenue momentum, while new businesses—pulses & spices—should provide the additional revenue fillip, in our view. We maintain ‘BUY/SO’ with a TP of INR880. The stock is trading at 45.4x FY23E EPS.

Financial model Podcast Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change Net Revenue 30,085 27,139 10.9 30,372 (0.9) EBITDA 3,995 4,827 (17.2) 3,002 33.1 Adjusted Profit 1,891 2,822 (33.0) 1,178 60.5 Video Corporate access Diluted EPS (INR) 2.1 3.1 (33.0) 1.3 60.5

Abneesh Roy Tushar Sundrani +91 (22) 6620 3141 +91 (22) 6620 3004 [email protected] [email protected]

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TATA CONSUMER PRODUCTS

Financial Statements

Income Statement (INR mn) Balance Sheet (INR mn) Year to March FY21A FY22E FY23E FY24E Year to March FY21A FY22E FY23E FY24E Total operating income 1,16,020 1,33,392 1,49,548 1,66,213 Share capital 922 922 922 922 Gross profit 46,997 56,025 64,306 72,303 Reserves 1,44,424 1,51,670 1,60,484 1,71,038 Employee costs 9,702 10,938 12,113 13,297 Shareholders funds 1,45,345 1,52,592 1,61,406 1,71,959 Other expenses 14,595 16,674 18,394 19,946 Minority interest 10,925 11,025 11,125 11,225 EBITDA 15,438 19,342 23,329 27,591 Borrowings 7,206 7,806 8,406 9,006 Depreciation 2,547 3,058 3,346 3,633 Trade payables 16,255 11,658 12,845 14,151 Less: Interest expense 687 525 567 609 Other liabs & prov 16,061 15,961 15,861 15,761 Add: Other income 1,214 1,552 1,814 2,109 Total liabilities 2,02,559 2,05,809 2,16,410 2,28,869 Profit before tax 12,477 16,911 20,931 25,157 Net block 16,423 18,829 21,002 22,894 Prov for tax 3,173 4,362 5,350 6,415 Intangible assets 1,04,006 1,03,255 1,02,497 1,01,732 Less: Other adj 0 0 0 0 Capital WIP 932 876 876 876 Reported profit 8,567 12,548 15,580 18,742 Total fixed assets 1,21,360 1,22,960 1,24,374 1,25,501 Less: Excp.item (net) (307) 0 0 0 Non current inv 4,827 4,827 4,827 4,827 Adjusted profit 8,873 12,548 15,580 18,742 Cash/cash equivalent 33,980 31,455 37,350 44,747 Diluted shares o/s 922 922 922 922 Sundry debtors 7,613 10,964 11,882 13,206 Adjusted diluted EPS 9.6 13.6 16.9 20.3 Loans & advances 3,015 3,015 3,015 3,015 DPS (INR) 4.1 6.1 7.6 9.1 Other assets 26,259 27,083 29,456 32,069 Tax rate (%) 24.2 25.2 25.2 25.2 Total assets 2,02,559 2,05,809 2,16,410 2,28,869

Important Ratios (%) Free Cash Flow (INR mn) Year to March FY21A FY22E FY23E FY24E Year to March FY21A FY22E FY23E FY24E Gross margin (%) 40.5 42.0 43.0 43.5 Reported profit 8,567 12,548 15,580 18,742 Staff cost (% of rev) 8.4 8.2 8.1 8.0 Add: Depreciation 2,547 3,058 3,346 3,633 A&P as % of sales 6.3 6.8 7.0 6.9 Interest (net of tax) 687 525 567 609 EBITDA margin (%) 13.3 14.5 15.6 16.6 Others 3,993 3,210 3,836 4,606 Net profit margin (%) 7.6 9.4 10.4 11.3 Less: Changes in WC 1,834 (8,772) (2,105) (2,630) Revenue growth (% YoY) 20.8 15.0 12.2 11.2 Operating cash flow 16,564 6,208 15,875 18,546 EBITDA growth (% YoY) 19.5 25.3 20.6 18.3 Less: Capex (1,792) (4,760) (4,760) (4,760) Adj. profit growth (%) 20.8 41.4 24.2 20.3 Free cash flow 14,772 1,448 11,115 13,786

Assumptions (%) Key Ratios Year to March FY21A FY22E FY23E FY24E Year to March FY21A FY22E FY23E FY24E GDP (YoY %) (8.0) 9.0 7.0 7.0 RoE (%) 6.3 7.9 9.3 10.6 Repo rate (%) 4.0 4.0 4.3 5.3 RoCE (%) 8.7 10.7 12.4 14.0 USD/INR (average) 75.0 73.0 72.0 71.0 Inventory days 105 110 110 110 India bev growth (%) 36.2 23.2 14.4 11.9 Receivable days 26 30 29 29 India food growth (%) 18.3 17.2 19.2 18.6 Payable days 68 55 55 55 Int biz growth (%) 7.5 5.0 4.6 4.6 Working cap (% sales) 8.6 14.1 14.0 14.1 COGS % of consol rev 59.5 58.0 57.0 56.5 Gross debt/equity (x) 0 0 0 0 Other exp (% of rev) 12.6 12.5 12.3 12.0 Net debt/equity (x) (0.2) (0.1) (0.2) (0.2) Yield on cash 3.1 4.0 5.0 5.0 Interest coverage (x) 18.8 31.0 35.2 39.3

Valuation Metrics Valuation Drivers Year to March FY21A FY22E FY23E FY24E Year to March FY21A FY22E FY23E FY24E Diluted P/E (x) 79.7 56.4 45.4 37.7 EPS growth (%) 20.8 41.4 24.2 20.3 Price/BV (x) 4.9 4.6 4.4 4.1 RoE (%) 6.3 7.9 9.3 10.6 EV/EBITDA (x) 44.1 35.3 29.1 24.3 EBITDA growth (%) 19.5 25.3 20.6 18.3 Dividend yield (%) 0.5 0.8 1.0 1.2 Payout ratio (%) 43.6 44.6 44.7 44.8

Source: Company and Edelweiss estimates

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TATA CONSUMER PRODUCTS

Trends at a glance

Trends at a glance Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Volume growth (%) India packaged beverages 5.0 4.0 12.0 10.0 23.0 3.0 India foods (1.0) 8.0 6.0 12.0 21.0 17.0 US coffee 15.0 27.0 (3.0) 7.0 (2.0) (16.0) International tea 4.0 0.1 6.0 1.0 (9.0) (including Vietnam) (12.0) 14.0 8.0 (4.0) 31.0 (6.0) Foodservice international (60.0) (19.0) (25.0) (31.0) NA Revenue growth (%) India packaged beverages 5.9 11.0 32.1 46.1 59.6 28.2 India foods NA 18.9 13.1 18.8 22.4 19.6 International - Beverages 6.5 15.0 7.3 8.8 0.1 (12.7) Starbucks (87.0) 14.0 371.0 EBIT margin India - Beverages 11.5 21.5 13.3 6.2 4.3 11.9 India - Foods 10.9 19.4 16.0 14.8 13.5 13.6 International - Beverages 14.7 14.5 12.6 13.2 12.6 12.5 No. of stores Starbucks 185 187 196 209 221 219 Source: Company Q1FY22 Conference call takeaways Overall  Consolidated revenue grew roughly 11% YoY

 A&P spends increased during the quarter. This along with low cost tea inventory in base impacted margins

 Company will be improving A&P spends going ahead

 North India tea prices saw an uptick sequentially, due to drought and second wave scare however June saw some tapering off

 Tea business has gained 170bps YoY in market share

 Company has taken some hike in Tea to combat tea price inflation

 Company should see a conversion of 101% of EBITDA into cash this year

 Nourishco revenue grew roughly by 91%YoY, bringing the 2-year CAGR to 12%, despite the severe adverse impact of COVID on OOH consumption

 Himalayan brand led the growth in Nourishco

 The growth was broad based with all products growing strongly, with Tata Water Plus delivering yet another exceptional quarter.

 Quarter saw roll-out of Himalayan in Ecommerce and MT channels is seeing good traction. Geography and capacity expansion on track.

 Himalayan continued to add key institutional accounts despite the second wave of COVID

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TATA CONSUMER PRODUCTS

 In terms of synergies, company is already ahead of 1000mn run rate target with significant synergies from cost rather than revenue

 Company is on track to 1 million outlets under direct coverage by company, which should be achieved by September

 Company tripled number of feet on street in rural segment and have added distributors 3000 distributors here

 Tata coffee revenue for the quarter grew 5%YoY led by the extractions business, which helped offset the decline in coffee plantations

 The quarter saw value growth in Tea (better realization) while Coffee revenue declined YoY, due to a high base.

 Overall extraction business grew 21%YoY, with growth seen in both Vietnam and domestic business, which was impacted by nationwide lockdown last year

 Vietnam business recorded highest ever EBIT driven by higher volumes and a higher proportion of premium blends.

 ICRA has upgraded Tata Coffee’s long- term rating to AA+ (stable), on company’s fund-based bank facilities.

 While revenue of for the quarter grew 371%YoY on a depressed base of last year, it was still 61% indexed to Q1FY20 (baseline).

 April and May performance was impacted by localized lockdowns, June saw a V- shaped recovery with the gradual easing of restrictions on store operations.

 Tata Starbucks delivery contribution increased to 27%, driven by several focused initiatives, to offset the decline in dine-in.

 84% of Tata Starbucks have reopened and it has a total of 219 stores in 18 cities

 New launches include Tata salt super lite, Tata chakra gold care, Eight O clock premium coffee flavour variants and Tata sampan dal tadka masala

 Company has initiated ted set up of enterprise data platform

 Company has begun setting up centralised database and is in process of setting up analytics to improve decision making and customer engagement

 Company aims to get high single digit share in instant coffee going ahead using innovative launches

 Ecommerce channel improved 15%YoY and now contributes 7.3% of India business sales excluding Nourishco

 Company is working with BigBasket, acquired by , to drive synergies

India foods business  India beverage business revenue grew at 28%YoY and volume at 3%YoY

 India foods business revenue grew at 20%YoY and volume at 17%YoY

 Salt revenue grew 20%YoY during the quarter, despite a high base

 Tata Sampann portfolio grew 12%YoY, due to pantry loading in the base quarter, bringing the 2-year CAGR to ~30%YoY

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TATA CONSUMER PRODUCTS

 Company continued to drive premiumization with Premium Salts portfolio growing 34% during the quarter.

 Tata salt gained 240bps YoY in market share

 Tata Sampann Spices recorded strong growth in the ecommerce channel.

 Salt growth was led by volumes, premium salt saw good value gains

 Tata sampan pulses, poha and spices are showing good growth

 Quarter saw launch of Tata Salt SuperLite, with 30% Less Sodium.

 Market specific sales strategy across regions have been developed, company aims to place itself in all relevant outlets

International

 International Beverages business growth rates were impacted owing to pantry loading in the base quarter last year.

 US coffee business saw fall of 15%YoY in constant currency terms and 16%YoY fall in volumes

 International tea revenue saw fall of 10%YoY in constant currency and 9%YoY fall in volumes

 Revenue from UK business for the quarter declined 11% (constant currency) owing to pantry up-stocking that led to 12%YoY growth in the base quarter last year.

continued to grow share in Fruit & Herbal segment with the new Herbals range.

 Company integrated Teapigs with the mainline sales system to sell a 3-brand portfolio. Specialty OOH channel is seeing fast recovery

 Good Earth tea continues to attract younger consumers and Good Earth kombucha is seeing good traction in OOH and Specialty Grocery channels.

 Good Earth launched Good Energy, an organic natural energy drink

 Company is setting up a dedicated e-commerce team for UK and Europe and an integrated back end i.e., fulfillment centers for all tea brands

 Teapigs continued to see strong growth, driven by fast recovery in Specialty OOH and Grocery channels.

 Premium mineral water Himalayan was launched online & on Amazon; retail expansion is underway.

 Revenue of USA business for the quarter declined 15% YoY (constant currency), due to pantry loading that led to 26%YoY growth in the base quarter last year.

 Retail coffee category saw a decline during the quarter, lapping an elevated base of last year, however showing signs of rebound in June.

 Tea (excluding Empirical): Revenue for the quarter declined 8%YoY (constant currency), on an elevated base that saw 25%YoY growth in the base quarter.

 Company launched Tetley Irish Breakfast with ShopRite with an aim to expand presence in other retailers.

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TATA CONSUMER PRODUCTS

 Tetley outperformed the black hot tea category while Good Earth Sensorial blends & Teapigs continued their momentum in the Specialty tea segment.

 32-count K-Cups and Café Arriba innovations continued to perform well with distribution build.

 America reopens, with increased footfall in stores, café’s – taking share away from eCommerce and Retail

 Company has 4.5% market share in coffee bags in US market

 Revenue from Canada business for the quarter declined 25% (constant currency), due to pantry loading that led to 32% growth in the base quarter last year.

 Tetley has gained market share, both in regular and specialty tea. There was a 26%YoY fall in speciality tea revenue.

Consolidated segmental snapshot

Year to March Q1FY22 Q1FY21 % change Q4FY21 % change Revenues 30,085 27,139 10.9 30,372 (0.9) Branded Business 27,393 24,569 11.5 27,217 0.6 India - Beverages 12,671 9,886 28.2 12,001 5.6 India - Foods 7,047 5,891 19.6 6,417 9.8 International - Beverages 7,676 8,792 (12.7) 8,799 (12.8) Non Branded Business 2,776 2,644 5.0 3,236 (14.2) Others and inter-segment sales (85) (74) NM (82) NM EBIT 3,614 4,693 (23.0) 2,877 25.6 Branded Business 3,427 4,554 (24.7) 2,492 37.5 India - Beverages 1,507 2,121 (28.9) 509 196.1 India - Foods 960 1,146 (16.2) 868 10.6 International - Beverages 960 1,287 (25.4) 1,115 (13.9) Non Branded Business 186 140 33.5 385 (51.6) EBIT margins (%) Branded Business 12.5 18.5 (602) 9.2 335 India - Beverages 11.9 21.5 (956) 4.2 765 India - Foods 13.6 19.4 (582) 13.5 10 International - Beverages 12.5 14.6 (213) 12.7 (17) Non Branded Business 6.7 5.3 143 11.9 (518) Source: Company Outlook and valuations: A favourable tide is brewing; maintain ‘BUY’ TCPL has two steady base businesses—salt and tea—with market leaderships and potential for sustainably high single-digit to low double-digit growth in revenue. Its newer businesses, namely pulses and spices, are small but represent plays on large categories with huge room for growth.

The appointment of new MD Mr. Sunil D’Souza, who comes in with a vast experience in the consumer goods space, and the Tata Group’s focus on having a large presence in consumer goods imply TCPL has building blocks in place to take advantage of the huge opportunity in the Indian consumer goods sector.

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TATA CONSUMER PRODUCTS

We expect the following growth enablers for TCPL:

1. The base businesses of packaged tea and salt have potential for high single digit revenue growth on the back of expanded distribution, scope to gain share from the unorganised market, and premiumisation.

2. At INR1.5tn, the potential market size of pulses is about 5x TCPL’s two existing food businesses of tea (INR260bn) and salt (INR70bn). At INR600bn, spices is also larger category than company’s existing businesses. Although from a small base, these businesses have large potential for growth. Pulses revenue for TCPL was merely INR2.2bn in FY20 while spices is merely INR0.6bn.

3. Appointment of Mr. Sunil D’Souza as the MD and CEO; he comes with experience of 26 years spanning Whirlpool, PepsiCo and Hindustan Unilever.

4. The merger of ’ salts business with TCPL gives it an expanded distribution coverage of 2.5mn outlets, which would strongly aid revenue growth.

We maintain ‘BUY/SO’ with a TP of INR880. The stock is trading at 45.4x FY23E EPS.

SOTP valuation Valuation Multiple Per Share value % of total Segment methodology (x) (INR) value India business P/E 60 756 85.8 International P/E 25 93 10.6 business Starbucks P/S 6 31 3.5 Total equity value 880 Source: Edelweiss Research

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TATA CONSUMER PRODUCTS

Standalone financial snapshot

(INR mn) Q1FY22 Q1FY21 YoY % Change Q4FY21 QoQ % Change Total income from operations 19,659 16,054 22.5 18,501 6.3 Cost of materials consumed 12,837 9,497 35.2 12,793 0.3 Advertising & publicity 861 565 52.5 1,237 (30.3) Employee benefits expenses 884 718 23.1 922 (4.1) Other expenses 2,338 2,018 15.8 2,129 9.8 Total expenses 16,920 12,798 32.2 17,080 (0.9) EBITDA 2,739 3,257 (15.9) 1,421 92.8 Other income 1,462 457 220.0 287 409.2 Depreciation and amortisation expense 349 296 17.9 334 4.5 Finance costs 77 65 17.3 79 (3.3) PBT 3,776 3,353 12.6 1,295 191.6 Tax expense 739 820 (9.9) 334 121.4 PAT before exceptional 3,037 2,533 19.9 961 216.0 Exceptional - (210) NM (144) (100.0) PAT 3,037 2,323 30.7 817 271.8 As % of net sales COGS 65.3 59.2 614 69.1 (385) Advertising & publicity 4.4 3.5 86 6.7 (230) Staff costs 4.5 4.5 2 5.0 (49) Other expenditure 11.9 12.6 (68) 11.5 38 EBITDA 13.9 20.3 (635) 7.7 626 PBT 19.2 20.9 (167) 7.0 1,221 Net profit 15.5 15.8 (33) 5.2 1,026 Tax rate 19.6 24.4 (488) 25.8 (620) Source: Company

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TATA CONSUMER PRODUCTS

Consolidated financial snapshot (INR mn)

Year to March Q1FY22 Q1FY21 % change Q4FY21 % change FY21 FY22E FY23E Total Income 30,085 27,139 10.9 30,372 (0.9) 1,16,020 1,33,392 1,49,548 Cost of goods sold 17,824 15,006 18.8 18,460 (3.4) 69,023 77,368 85,242 Gross profit 12,261 12,133 1.1 11,912 2.9 46,997 56,025 64,306 Staff costs 2,654 2,291 15.9 2,702 (1.8) 9,702 10,938 12,113 A&P exps 1,582 1,338 18.3 2,164 (26.9) 7,263 9,071 10,468 Other expenditure 4,029 3,678 9.5 4,044 (0.4) 14,595 16,674 18,394 Total expenditure 8,266 7,306 13.1 8,910 (7.2) 31,560 36,683 40,976 EBITDA 3,995 4,827 (17.2) 3,002 33.1 15,438 19,342 23,329 Depreciation 668 619 7.9 659 1.4 2,547 3,058 3,346 EBIT 3,327 4,208 (20.9) 2,343 42.0 12,890 16,284 19,984 Other income 280 327 (14.4) 430 (34.8) 1,214 1,552 1,814 Interest and financial charges 204 173 18.2 155 32.2 687 525 567 PBT 3,403 4,362 (22.0) 2,618 30.0 13,417 17,311 21,231 Provision for taxation 957 1,104 (13.3) 646 48.2 3,173 4,362 5,350 Core Profit 2,446 3,258 (24.9) 1,973 24.0 10,244 12,948 15,880 Exceptional (39) 633 NM (639) NM (307) - - Share of profit in JV & Minority (555) (435) 27.5 (794) NM (633) (400) (300) Reported PAT 1,852 3,456 (46.4) 539 243.5 9,305 12,548 15,580 Adjusted PAT 1,891 2,822 (33.0) 1,178 60.5 8,873 12,448 15,480 Paid up Capital (Re 1 each) 922 922 0.0 922 0.0 922 922 922 EPS 2.1 3.1 (33.0) 1.3 60.5 9.6 13.5 16.8 as % of net sales COGS 59.2 55.3 395 60.8 (153) 59.5 58.0 57.0 Staff costs 8.8 8.4 38 8.9 (7) 8.4 8.2 8.1 Other expenditure 13.4 13.6 (16) 13.3 8 12.6 12.5 12.3 A&P exps 5.3 4.9 33 7.1 (187) 6.3 6.8 EBITDA 13.3 17.8 (451) 9.9 339 13.3 14.5 15.6 EBIT 11.1 15.5 (444) 7.7 334 11.1 12.2 13.4 PBT 11.3 16.1 (476) 8.6 269 11.6 13.0 14.2 Net profit 8.1 12.0 (387) 6.5 163 8.0 9.4 10.4 Tax rate 28.1 25.3 282 24.7 347 23.6 25.2 25.2 Source: Company, Edelweiss Research

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TATA CONSUMER PRODUCTS

Company Description Tata Consumer Products (TCPL) is a packaged foods company unifying the food and beverage interests of the Tata Group under one umbrella. It is home to brands such as Tata Tea, Tetley, Tata Salt and Tata Sampann. In the beverage business, Tata Tea is the number one player by volume and number two by value. Other beverage brands include Tata Tea, Tetley, Vitax, Eight O’Clock Coffee, Himalayan Natural Mineral Water, Tata Coffee Grand and Joekels. TCPL has a presence in the water business through its fully owned subsidiary NurishCo, which has three major brands: Himalayan, Tata Gluco Plus and Tata Water Plus. The company also has a 57% stake in Tata Coffee, a coffee plantation company. In FY20, the company acquired the consumer products business of Tata Chemicals, which includes Tata Salt and Tata Sampann. Tata Salt is the undisputed leader of the salt category in India. The company sells spices and pulses under the Tata Sampann brand. TPCL also has an equal joint venture with Starbucks (called Tata Starbucks) to own and operate Starbucks cafés in India. Following its merger with Tata Chemicals, TPCL’s revenue from India accounts for 62% of its overall consolidated revenue; the balance comes from outside India.

Investment Theme Tata Consumer Products (TCPL) is a mature—genetically modified— consumer play that unifies the food & beverage interests of the Tata Group. The ‘staples-beverage’ merger along with change in top management has infused new energy in the company. The new entity boasts a better mix of global and India businesses that are geared for growth and profitability, rendering it a formidable consumer company. TCPL has two steady base businesses in salt and tea, wherein it has market leadership. The newer businesses—pulses and spices—are currently small but are a play on humungous categories that imply great growth potential. The merger has created a robust consumer business platform, which can yield synergistic benefits and readily tap into ’ online grocery and e-commerce ambitions. Besides, the new MD, Mr. Sunil D’Souza, who comes with vast experience in the consumer goods space, and Tata Group’s focus on having a large presence in the consumer goods space imply TCPL has the right ingredients to dish out growth—by exploiting the huge opportunity in the Indian consumer goods sector.

Key risks Apart from macroeconomic risks, the other key risk for TCPL is a failure to create brand pull for its Tata Sampann brand, which is still very small. The other risk for Tata Sampann is competition from private label and channel partners. In terms of its Tea and Salt businesses, a rise in competitive intensity could pose a challenge although TCPL has strong market positions in both the categories. That said, we see rising competitive intensity among existing players, either via launches or at price points that could pressure margins in the short term

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TATA CONSUMER PRODUCTS

Additional Data Management Holdings – Top 10* CEO Mr. Sunil D'souza % Holding % Holding CFO Mr. L. Krishnakumar Govt pension fu 1.40 Mirae Asset Glo 1.73 HDFC AMC 1.39 BlackRock 1.72 COO Mr. Ajit Krishnakumar Norges Bank 1.14 LIC 1.67 Chairman Mr. N. Chandrasekaran First State Inv 1.86 Vanguard 1.45 Auditor Deloitte Haskins & Sells LLP Nippon Life Ind 1.77 Axis AMC 1.45

*Latest public data

Recent Company Research Recent Sector Research Date Title Price Reco Date Name of Co./Sector Title From sips to gulps: Beefing up 29-Jun-21 758 Buy 03-Aug-21 Dabur India All round beat; Result Update execution; Company Update Revenue robust; margin under Good show; summer portfolio 07-May-21 629 Buy 02-Aug-21 Emami pressure; Result Update impacted; Result Update

06-May-21 Margins under pressure; Oven fresh 653 Buy 02-Aug-21 Britannia Industries Turning tide; Result Update

Rating Interpretation Daily Volume TP 70 800 750

675 56

550 42 (INR)

425 (Mn) 28

300 14 175 Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Feb-21 0 TATACONS IN EQUITY Buy Hold Reduce Aug-18 Feb-19 Aug-19 Feb-20 Aug-20 Feb-21

Source: Bloomberg, Edelweiss research Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage Rating Rationale

Buy Hold Reduce Total Rating Expected absolute returns over 12 months

Rating Distribution* 173 54 19 247 Buy: >15%

>50bn >10bn and <50bn <10bn Total Hold: >15% and <-5%

Market Cap (INR) 215 40 4 259 Reduce: <-5% *1 stocks under review

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