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MOSL: TATA CONSUMER PRODUCTS (Buy)-Impact of tea cost inflation is now behind but higher A&P spends to weigh

TATA CONSUMER PRODUCTS: Impact of tea cost inflation is now behind but higher A&P spends to weigh

(TATACONS IN, Mkt Cap USD9.7b, CMP INR789, TP INR945, 20% Upside, Buy)

 

• Gross margin pressure eased off in 2QFY22 which has been impacting since the last four quarters due to tea cost inflation. The management expects gross margin to improve on a QoQ basis going forward. However, quarterly performance was impacted due to higher A&P spends (which is expected to continue) and other expenses.
• We maintain our earnings estimates and arrive at our SoTP-based TP of INR945/share. We maintain our Buy 

Performance broadly in line

• TCP reported a revenue of INR30.3b (est. INR30.7b), up 9% YoY. EBITDA margin contracted by 70bp YoY to 13.6% (est. 14.3%) due to higher A&P and other expense, but was offset by a 190bp YoY and 200bp QoQ improvement in gross margin to 42.8%. EBITDA grew 3% YoY to INR4.1b (est. INR4.4b). Adjusted PAT stood at INR2.8b (est. INR3b), up 3%.
• A&P/other expenses grew by 27%/23% in 2QFY22, which impacted EBITDA performance, driven by higher (up 75% YoY) A&P investments in the India business.
• Revenue in India Branded Beverages/Foods grew 13%/23% YoY to INR12.7b/INR7.1b. EBIT in India Beverages grew 14% YoY to INR1,697m, while the same in India Foods declined by 19% to INR748m.
• Volume in India Beverages/Foods grew 2%/16% YoY in 2QFY22. The strong growth trajectory in Salt continued, with a revenue growth of 20% in 2QFY22. The Tata Sampann portfolio grew 29% on a strong base of last year.