ICICI Securities has a favorable outlook on Tata Consumer Products Ltd (TCPL). The firm described Starbucks India's aim to more than double its shop count to 1,000 by FY28 as ambitious but attainable. The domestic brokerage believes that Tata Starbucks has the ability to achieve a 20% Ebitda margin, compared to Starbucks Corporation's 18%.
It stated that Tata Starbucks' ambitious objective is most likely the result of a vacuum produced by Café Coffee Day's partial withdrawal, despite the fact that Tata Starbucks is significantly more premium-positioned. Furthermore, ICICI Securities believes it might be attributable to the growth of new chains such as Blue Tokai and Third Wave.
The brokerage is estimating Tata Starbucks' enterprise value at Rs 21,100 crore and an EBITDA multiple of 24 times. It values Tata Starbucks at Rs 91 per share in its Tata Consumer Products Ltd (TCPL) estimates.
"We expect TCPL to deliver revenue and PAT CAGRs of 15.8 percent and 18.9 percent, respectively, over FY24-26E, driven by improved profitability in India Foods and a resurgence in profitability in the international sector. "We maintain our buy rating and value the stock at the unchanged target price of Rs 1,385," it added.
On Wednesday, Tata Consumer stock was trading at Rs 1,213.20, up 0.89 percent. The stock has risen by 40% in the past year.
ICICI Securities reported Tata Starbucks has regularly recorded a gross margin of 65 percent or more from fiscal years 2017 to 24. Furthermore, the gross margin trajectory is constantly increasing, driven by increased size, which results in greater bargaining leverage with suppliers, and stable commodity pricing. It said that Tata Starbucks' cost of goods sold as a proportion of sales is comparable to Starbucks Corporation.
"It was 31%-32% in FY21-23 for both SBUX and TS. SBUX has a higher staff cost to total sales ratio than TS does. Other operating expenditures to total sales have decreased for TS, whereas SBUX has been stable since FY1923," it stated.
While Tata Consumer Products' revenue per store stagnated from FY14 to FY24, ICICI Securities stated that revenue per store has the potential to increase owing to portfolio premiumization, expansion in locations with lesser competition pressures, and inflation.
"We observe that the working capital requirements are minimal for this firm, since working capital days have stayed essentially negative throughout the years. Higher creditor days (an average of 101 days over FY21-23), show TS's ability to use its high brand equity against suppliers," it stated.
