India tea and salt form TCL's core and are steady high single-digit growth businesses:
In salt, TCL is the only national player with ~30% market share;
Furthermore, with a capacity not a constraint anymore, salt volume growth could accelerate;
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The standalone business houses the India branded consumer products contributed ~62% to revenues and ~65% to EBIT in FY20;
On net income, the contribution of standalone is higher, at ~78%;
The core for the standalone business is packaged tea and branded salt,-
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-which form 90% of standalone sales and nearly 100% of standalone profits.
New food businesses and Starbucks are long-term prospects:
Branded pulses and spices have high growth potential as the branded share is very low at 1% for pulses and 30% for spices.
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India tea, salt form TCL's core -profitable and stable:
The India tea and salt business contribute ~68% to TCL's EBITDA;
The key driver for tea and salt is share gain from loose consumption and smaller brands which form the majority of these categories;
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In tea, ~35% of the market is loose tea and ~58% of the branded market is not with national players;
Capacity constraints which were in the past an impediment for growth in salt, have been taken care of with planned capacity expansion over FY19-24 at
~8% CAGR.
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The branded packaged share is ~1% for pulses and ~30% for spices;
TCL's reported ROCE is low at 5%, however adjusting for the goodwill and intangible assets, the operational ROIC is 25% in FY20.
The tea category overall has very high penetration and may not grow at more than
low single digits;
However, packaged tea is expected to grow faster and national brands are likely to grow even faster than packaged tea.
The following are the growth drivers for national brands:
Conversion of loose to branded tea,
Movement from local brands to
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national players, and premiumization. National brands hold only ~42% share in the branded tea market.
The duopoly of national players- TCL lost market share in FY19 to HUL but regained the initiative in FY20:
TCL has a slightly larger volume market share, while HUL has
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a larger value share; TCL is stronger in north India while HUL is stronger in south India.
Green tea an emerging opportunity for TCL:
Green tea is a small segment of Rs 4bn within the large Rs 250bn packaged tea category in India;
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It contributes less than 2% to the overall tea market in India, compared to ~25% of the tea market globally;
While it is small, the segment experienced more than a 20% CAGR over FY15-20;
TCL has a market share of ~25% in green tea through the Tetley brand & is expected
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to gain from the long-term growth of this segment.
Tata salt- Business restructuring sets the stage for faster growth:
Tata is the most dominant national brand with ~65% share within a branded players.
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Advertising and retailer advantage:
Matching Tata on advertising spend to create a similar brand image would entail several years of low profitability for a competitor;
Tata's brand pulls in turn generate significant leeway with retailers.
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TCL has guided for 2-3% of revenues as synergy gains from the merger of the salt and tea businesses. The key sources of the synergy benefits are: (1) better absorption of fixed costs on a larger India turnover and (2) gains on distribution efficiencies and scale of procurement.
International businesses- slow-growing, but steady cash flows:
The International business consists of 3 main parts- US coffee, UK tea, and Canada Tea;
These are slow-growing as they are in developed markets and the black tea category is not a growth category in these markets;
US Coffee-
TCL's key brand is 'Eight O'clock', EOC largely plays in the bag segment of the US coffee market, where it has more than a 10% share on the East coast, this business is very profitable and generates an EBITDA margin of ~18%;
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UK and Canada Tea-
In the UK, has a ~30% market share of black tea and in Canada it has a ~50% share, TCL's share in the non-black tea market is much lower in both markets; the black tea market is not a growth market in these countries and thus growth rates are likely
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to be in the low single digits.
Distribution expansion a major low hanging driver from the TCL merger:
Tata sampann reaching merely 40,000 outlets compared to the direct reach of 700,000 outlets for TCL's tea business.
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Spices are a more value-added profitable market, but TCL may need the inorganic route to scale up rapidly:
Unlike pulses, where there is relatively little differentiation in the end product, getting consistency in the end-product spices at scale is of significant value to
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the consumer.
Tata Starbucks- a long-term prospect, Covid-19 hit in FY21 sets it back by a year:
It has more than doubled its stores from 85 to 180 over FY17-20;
Revenue has had a CAGR of 25% over the past 3 years and was ~5.6bn in FY20.
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Sunil D'souza, the new CEO of Tata consumer, has been the managing director of Whirlpool India for 4 years, and prior to that had 15 years of experience at Pepsi; He thus comes with a good mix of leadership experience and FMCG food experience.
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Strong competitive advantages in Tea/salt,
👉Production process
👉Distribution and packaging
👉Advertising and retailer advantage
Challenges in pulses:
👉Product is a wash-and-use one.
👉High price volatility and production skewed towards one season.
👉Long supply chain
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👉Competition from modern trade private labels
Positives including merger benefits include:
👉Distribution expansion a major low hanging driver from the TCL merger
👉Spices are a more value-added profitable market, but TCL may need the inorganic route to scale up rapidly
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👉Potential entry into more food categories a long-term driver.
👉Scale benefits on fixed costs.
👉Scale benefits on procurement and terms of trade.
👉Revenue synergies from distribution and cross selling
End of thread 🧵
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Until September 2017, SSL (standalone) was engaged in manufacturing human APIs but this segment was demerged following which SSL became a pure-play
animal health company;
2/21
At present, SSL (consolidated) manufactures veterinary APIs & Formulations in its wholly-owned subsidiary, Alivira Animal Health Limited (AAHL), and offers analytical services to the pharmaceutical industry through another wholly-owned subsidiary -Sequent Research Limited (SRL);
Potential over the longer term for the exchanges/short term remains huge;
A look into Europe reveals the 2 largest European power exchanges account for ~40% of the EU's electricity consumption (v/s ~4% in India).
Power exchanges have gained significant share:
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-(>4% in FY20 v/s <2% in FY11) over the past decade, despite the overall share of the short-term market remaining flat at ~10% of the total electricity generation.
IEX- Dominant position with a well-evolved platform:
Consumer sentiment continues to improve month on month. After 49% YoY volume decline in 1QFY21, volumes had already recovered to flattish levels YoY by 3QFY21. Thus, further sequential improvement is encouraging.
Innovation & renovation activity is also likely to pick up further
Mr Kripalu believes the ongoing Prestige & Above (P&A) trend would only accelerate as high involvement categories such as alcohol would move toward premium products as they get more affordable for the population
The revenue stream is diversified, with 52% of revenues being market-linked (transaction charges / IPO & corporate action / KYC are 21/11/13% of revenues).
1/24
Annual issuer charges (~29% of rev) are determined by SEBI driven by the certainty of earning custody charges from existing issuers.
CDSL earns revenue by charging annual issuer fees to corporates and account maintenance charges, user facility, and transaction fees to DPs
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The remaining 19% of revenue is derived from other services like, e-voting, e-CAS, account maintenance, etc.
Industry structure:
Duopolistic industry structure with high entry barriers:
Highly regulated by SEBI; the chances of a successful 3rd depository in India are very thin