Thread by @alphaspotcap

Tata Consumer:
Can it be the FMCG giant in India?

Here is the analysis of Tata Consumer Products Ltd, it’s growth opportunities, international business, financial data, key risks and more!

A detailed thread below! 🧵🧵👇🏻
#investing #stocks #TataGroup

(1/21)

• About:

TCPL is a consumer goods company, offering a portfolio of foods, beverages & retail, comprising marquee brands like Tata Tea, Tata Salt, Tetley, Himalayan Water, Starbucks, etc.

(2/21)

• It’s Acquisitions over the years:

1) Tetley in FY00
2) Good Earth in FY06
3) Eight O’clock, Jemca in FY07
4) Vitax in FY08
5) Joint venture with Starbucks in FY12
6) MAP brand in FY15
7) Branded tea business of Dhunseri Tea in FY20
8) NourishCo from PepsiCo in FY21

(3/21)

• The company has presence in ~40 countries with US, UK and Canada being integral for the business operations. Over the years, the company has tried to identify the core businesses & has streamlined them in order to focus on the key markets.

(4/21)

• Here is an overview of the Company and it’s brands.

(5/21)

• Focus on Distribution:

1) The company has more than doubled the direct reach from 0.4mn to 1.1mn in past 12months

2) Target of reaching 1.2mn outlets by March 2022, and 2mn by October 2022

3) Company has cut down on additional layer in its distribution structure

(6/21)

• TCPLs distribution reach has a lot of headroom left

Even with the current 2.6mn outlets, the reach is well below various FMCG peers, indicating the significant headroom to expand. The company plans to increase
its total reach to +4mn outlets by FY24.

(7/21)
• Domestic Business Growth:

TCPL's domestic business (core+new) is likely to benefit from:

1) Further augmenting market leadership position

2) Premiumization

3) Widening distribution

4) Shift from unbranded to branded consumption

5) Portfolio Expansion

(8/21)

• TCPLs International business:

1) Stable with decent market shares, strong margins &
good CF

2) It revisits its international portfolio at regular intervals where they divest stake in non-core businesses to enable greater focus on core branded businesses.

(9/21)

• The international business generates low-double digit EBIT margin (11.2% in FY20/ 13.4% in FY21).

• Margins witnessed expansion in FY21 primarily driven by cost control measures undertaken due to the pandemic, but are expected to normalize going ahead.

(10/21)

TCPLs Non branded Business:

• In FY21, non-branded business witnessed significant enhancement in profits, due to higher profits in Tata Coffee Ltd led by growth in the plantation segment & higher revenue driven improved performance in Vietnam (reached ~90% capacity).

(11/21)

• The company sees continued stress in the coffee extraction business, impacted by low demand from international markets, due to covid.

• Tea will be affected by
normalisation of prices after the surge seen last year due to lower production amid lockdown measures.

(12/21)

• Digital Initiatives:

1) TCPL introduced two key digital initiatives in FY19
Distributor Mgmt Solution (DMS) and Sales Force Automation (SFA) - to drive informed decision
making , & improve effectiveness of S&D. All distributors,are covered under the DMS and SFA tools

(13/21)

2) TCPL implemented SAP S4 HANA in FY21 to harmonise the global processes on a single digital platform, It will help them take up multiple digital growth agendas.

This will bring in significant efficiencies in operations, reporting & business analytics

(14/21)

Such initiatives will help them:

1) Improve sales outcomes

2) Serve at a low cost

3) Lower Working cap

4) Improve Service level

5) Lower supply chain cost

(15/21)

TCPLs Financials:

1) During FY21, the company recorded a 20.4% growth led by
36.2% growth in India Beverages, 18.3% growth in India Foods, 7.5% growth in International Beverages and 15.1% growth in non-branded business.

2) Inflation in tea prices:

(16/21)

3) TCPL had cut down on ad spends in FY21. The company still lags FMCG peers in terms of ad spends and going ahead we expect it to raise its spends

4) Company will focus on growth then margins as it will invest to grow the Sampann and Soulfull brands

(17/21)

5) TCPL's cash conversion cycle has lagged FMCG peers. Over the last two years, the company has
significantly reduced its working capital days driven by better inventory management, change in terms of trade and increased level of vendor credit.

(18/21)

• Key risks:

1) Slow pace of shift of business from unorganized to organized segment

2) Slower expansion of sales/distribution

3) High competitive intensity in the branded business

4) Hyper input cost inflation

5) Inability to raise consumer prices with inflation

(19/21)

• TCPLs Current Shareholding Pattern:

1) 26.1% - Public

2) 25.9% - FPI

3) 34.7% - Promoters

4) 13.3% - DII

Top 10 Shareholders are listed below 👇🏻

(20/21)

Conclusion:

With pieces together, TATA's FMCG business looks ready for the next phase. With the task of bringing the FMCG DNA under one company of Tata Group, TCPL has now started to take steps for its India business to become a long-term FMCG player!

(21/21)

How optimistic are you about Tata Consumers future prospects?

Comment down below!
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