Buy This Multibagger Large Cap Tata Group Stock, Shares Can Surge 22%, Says ICICI Securities

ICICI Securities has placed a buy call on Tata Consumer Products Ltd. (TCPL) with a target price of Rs 925 per share. The brokerage sees a potential upside of up to 22% from its current level in 12 months. It is a large-cap FMCG company of the Tata Group. It has a market capitalisation of Rs 70,189.99 crore.

Stock Outlook & Returns

The stock of the company today fell 1.17% ending at Rs 761.65 per share on NSE. The stock's 52 week low level is Rs 650.20 and the 52 week high is Rs 861.15, respectively. Its ROE is 6.18%. 

The stock fell 5.29% in the past 1 month and 6.92% in the past 3 months, respectively. It has given 6.52% of negative return in the past 1 year. However, the stock has given multibagger returns in the past 3 and 5 years, around 170.09% and 272.26%, respectively. 

Q2FY23 results

TCPL reported consolidated revenue and EBITDA growth of 10.9% and 5% YoY, respectively. However, recurring PAT declined 20.5% YoY. Constant currency growth was 10%. Segment-wise YoY revenue growth rates: India Beverages -2%, India Foods 29%, US Coffee 25%, International Tea -4% and Tata Coffee 41%. India Beverages and Foods reported volume growth of -1% and 0% YoY, respectively. Gross and EBITDA margin declined 101bps and 73bps, respectively. Standalone revenues, EBITDA and PAT were up 7.2%, 25.1% and 20.9% YoY, respectively. 

Steep impact on profitability of International Beverages

The EBIT margin of International business declined to 7.1% in Q2FY23 from 14% in Q2FY22 due to GBP depreciation as well as steep inflationary pressures. Further currency depreciation in Oct'22 as well as high inflation and likely recession in international markets indicate weaker performance of International Beverages even in H2FY23. 

India profitability protected at cost of volumes

India business reported EBIT margin of 14.2% in Q2FY23 compared to 12.4% in Q2FY22 but Tea and Foods reported volume growth of -1% and 0%, respectively. Due to steep inflation in input prices, the company has raised salt prices by ~27% in past 15 months. 

Market share gains in India

With steep price hikes and due to impact of inflation, TCPL has lost 20bps market shares (value) in Q2FY23. However, it continued to gain market shares (value) in Salt and expanded share by 128bps.  

Update on distribution expansion

TCPL has reached direct distribution of 1.4mn outlets by Sept'22. The number of super stockists are up 20% YoY. Modern trade revenues are up 18% YoY. E-commerce revenues were up 40% YoY and now account for 9.2% of net sales. 

ICICI Securities retains buy with Target Price of Rs 925 per share

According to the brokerage, India business reported EBIT margin of 14.2% in Q2FY23 (+150 bps QoQ); however, Tea and Foods volumes were flat (-1% and 0% YoY, respectively). Tea market share (value) declined 20bps YoY. We believe the strategy to focus on margins in short term instead of volumes/market shares may protect earnings in short term, but it may impact DCF value. International business EBIT declined 46% YoY due to inflationary pressures as well as GBP depreciation. 

"We believe both the key segments (India and International) are likely to see headwinds in near term due to steep volatility in input prices, currency depreciation and likely recession in International markets. We model the consolidation phase to continue even in H2FY23. Retain BUY; our long term positive view is intact, though we reckon there will likely be opportunities in stock volatility for long-term investors," the brokerage said. 

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.