Fortune Scrip     

Published: May 31, 2024
Updated: May 31, 2024

Tata Consumer Products (TCPL)

Emergent Indian FMCG giant

The 2024 general elections are done and dusted, leaving behind the political uncertainties that could have disturbed the business environment for India Inc. This fortnight, we have picked Tata Consumer Products, a recently reconstructed FMCG company of the illustrious House of Tatas. The company is not only fundamentally, financially and operationally strong, and efficiently managed, it also has tremendous growth potential and is on course to emerge as an Indian FMCG giant.

Consider how ths new FMCG entity has taken shape. First, Tata Global Beverages (formerly known as Tata Finley and subsequently as Tata Tea), saw the consumer products business of Tata Chemicals merged with it. Then followed an acquisition drive. The group took over Bengalurubased Kottaram Agro Foods (owner of the cereal brand ‘Soulfull’, the bottled water business of NourishCo and Tata Smart Foods. Going a step further, TCPL acquired BigBasket, a well-established distribution outfit, and renamed it Tata New.

The architect of the reconstructed entity, Tata group chairman N. Chandrasekaran, Chairman of the Tata group, avers, “We will continue to look for right acquisition opportunities in different categories with a view to leveraging its product portfolio, expanding distribution network and product innovation, as well as entering new categories. We are on a mission to create a premier and pacesetting diversified consumer products company. Our strength is in our deep understanding of our consumers in India and in international markets with our iconic market-leading brands and wide consumer reach. We are committed to delivering high-quality, innovative, tasteful and convenient products with goodness at its core.”

A-Z IN FOOD

He continues, “Our portfolio of products ranges from tea, coffee, water and ready-to-drink to salt, pulses, spices, ready-to-eat and more. In the beverages business, Tata Consumer Products is the second largest player in branded tea in the world. Our brands include Tata Tea, Tetley, Vitax, Eight O’ Clock Coffee, Himalayan Natural Mineral Water, Tata Coffee Grand and Vitax.

“Beginning with the iconic Tata Salt that pioneered the crusade for iodisation in India, our food business is one of the most trusted food brands in India and we have extended our portfolio to include salt variants for different markets and nourishing food products. With Tata Sampann, we bring the traditional wisdom of Indian food in a contemporary package to deliver the best of taste, nutrition and convenience.

“Tata Soulfull, the brand owned by our subsidiary Tata Consumer Soulfull, was launched in 2013. The brand operates in the Health & Wellness focused food segment with a portfolio of milletbased cereals and snacks for children and adults. With a combined reach of over 201 million households in India, the company has an unparalleled ability to leverage the Tata brand in consumer products.”

FINE FINANCES

The company has gone from strength to strength on the financial front. During the last 12 years, its sales turnover has more than doubled from Rs 7,351 crore in fiscal 2013 to Rs 15,206 crore in fiscal 2024, with operating profit trebling from Rs 770 crore to Rs 2,284 crore and net profit also trebling from Rs 445 crore to Rs 1,215 crore.

However, we have not picked TCPL as the Fortune Scrip for its past laurels; we strongly feel its future prospects are all the more promising. Consider:

TCPL products are highly popular not only in India but even globally. Its products have strengthened its presence in the key focus markets of the UK, the US and Canada. Tetley, Good Earth and Teapigs are its core tea brands in these markets. The company has also launched new products in its Eight O’Clock coffee portfolio and RTD portfolio with Teapigs Kombucha, Teapigs Cold Brew and Good Energy (a natural energy drink).

GROWTH PATH

• TCPL has grown through innovation, strategic alliances and acquisitions, and organic growth. The company has joined hands with Starbucks for a JV styled Tata Starbucks Ltd to own and operate cafes in India. Since the inauguration of its first store in Mumbai in 2012, the JV has expanded to 30 cities with many more cafes planned across the country. The JV has made a breakthrough in earnings by now.
• The management has converted what was originally a tea and coffee company into a multicategory FMCG company by resorting to the organic as well as inorganic route. Sunil D'Souza, MD and CEO of the company, puts it succinctly, "The company's vision now is to emerge as a larger packaged food and beverages company and eventually as a significant FMCG player."
• TCPL has been added to the benchmark Nifty50 Index, replacing state-owned GAIL. Thus, the company that operates Starbucks cafes in India will join FMCG peers such as Hindustan Unilever, Nestle and ITC in the blue chip index. This inclusion in the Nifty50 would lead to buying of TCPL shares by exchange traded funds (ETFs) worth Rs 760 crore.

DIVIDEND WISDOM

• TCPL is an attractive dividend stock. While its 0.4 per cent dividend yield may not seem attractive, its lengthy payment history has an overall appeal. Dividends are usually paid out of a company earnings, and if a company is paying more than it earns, the dividend might not be sustainable. If we examine the dividend payments of TCPL for the last 20 years, they are well within our sustainability criterion. For example, last year's dividend payment at 275 per cent is around 34 per cent of profit. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders handsomely. Besides, if reinvestment opportunities dry up, the company has enough room to increase the dividend. Dividend payout can also be measured against a company's free cash flow to ensure enough cash was generated to cover the dividend. TCPL's cash payout ratio was 16 per cent. This is quite conservative. Here, the dividend payment is covered by both profit and cash flow. This suggests the dividend is sustainable as long as earnings don't drop precariously. Viewed in the context of the company's ambitious growth plans, there is every chance of a higher dividend in the coming years.
• This year monsoon is predicted to be normal and this will give a boost to rural demand for FMCG products. TCPL is expanding its rural reach. The share with the face value of Re. 1 is quoted around Rs. 135. Investors with a long term perspective can certainly expect marked appreciation in the price during the next 3 to 5 years.