This Tata Stock is on Track to Become the #1 FMCG Company in the World

In a world where foreign products dominate our kitchens, imagine a scenario where Indian brands take centre stage in foreign households.

Not just any brand but the top esteemed brands of Tata group, a globally renowned business conglomerate.

Tata Consumer Products, a powerhouse in the FMCG (Fast-Moving Consumer Goods) industry, is becoming a household name across the world.

It boasts an impressive array of offerings. Its tea brands rank second in the world, and its coffee brands have been a favourite for generations.

The company doesn't just stop at beverages; its massive portfolio of pulses, spices, and everything delicious and convenient has made the company a dominant force in the FMCG sector.

Let's deep dive into Tata Consumer Products, which has a legacy of taste, a promise of innovation, and a sip of tradition in every cup!

Overview of the Company

Tata Consumer Products is a prominent Indian FMCG company offering a diverse range of food and beverage products.

From classic tea and coffee to convenient ready-to-eat meals, the company caters to various consumer needs.

It holds the world's second position in branded tea, with iconic brands like Tata Tea and Tetley.

The company's portfolio extends to salt pulses & spices, breakfast cereals, and snacks.

The company's key brands include Tata Tea, Tetley, Organic India, Eight O'Clock Coffee, Tata Coffee Grand, Himalayan Natural Mineral Water, Tata Copper+, Tata Gluco+, Tata Salt, Tata Sampann, Tata Soulfull, Ching's Secret, and Smith & Jones.

It boasts a strong distribution network of over 10,000 channel partners, 4 million (m)retail outlets, and 1.6 m direct outlets.

Coming to its geographical presence, while India contributes a significant portion of the revenue, Tata Consumer Products has a growing presence in the USA, UK, Europe, Australia, and other regions.

It strongly believes in innovation and is continuously investing to launch new products. In FY24, the company has launched one new product nearly every seven days, and in the last four years, it has launched over 100 products in various categories.

The company also partnered with Starbucks for a growing coffee chain in India. So far, it has opened 421 stores across 61 cities, and aims to reach the 1,000 store mark by 2028.

The company is currently in the process of streamlining its operations by amalgamating its wholly owned subsidiaries, namely NourishCo Beverages, Tata Coffee, Tata Consumer Soulful, and Tata SmartFoodz, to simplify, synergise, and achieve economies of scale.

It plans to stay at the forefront in an ever-evolving market place by embracing digital tools, artificial intelligence and data analytics to enhance decision making process, and personalise customer experience.

Robust Financial Performance

Tata Consumer Products has seen impressive growth over the past five years, driven by several key factors.

The revenue of the company grew at a compound annual growth rate (CAGR) of 9.7% in the last five years on the back of volume growth across product categories.

The volume growth is majorly supported by the company's brand strength. Most of the company's brands such as Tata Salt, Tata Tea, Tata Coffee, and Tetley have a leading market share in the Indian and international markets which aided the volume growth.

The best part is that company's growth is fuelled not by just one product category or single niche, it reported significant growth across all its product categories namely teas, healthy and convenient foods, and spices.

Its gross profit and net profit have grown at an impressive CAGR of 13.9% and 19.4% respectively on account of higher realisations and strong operating performance.

Apart from this, the company's established distribution network, improving market reach with rural penetration, and growing share of modern trade and e-commerce have also helped the profit growth.

While profit margins have seen a modest increase of around 2.5%, the company maintains a healthy average of 12.9% for gross profit margin and 8.3% for net profit margin over five years.

This translates to an average return on equity (RoE) of 6.8% and a return on capital employed (RoCE) of 9.6%. Continued focus on operational efficiency could help improve these metrics further.

Tata Consumer Products Financials (2019-2024)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue (Rs m)	97,490	117,234	125,654	139,570	154,589
Revenue Growth (%)		20.3%	7.2%	11.1%	10.8%
Gross Profit (Rs m)	10,174	15,131	16,667	20,110	19,497
Gross Profit Growth (%)		48.7%	10.2%	20.7%	-3.0%
Gross Profit Margin (%)	10.6%	13.0%	13.4%	14.6%	12.8%
Net Profit (Rs m)	5,352	9,938	10,790	13,465	13,010
Net Profit Growth (%)		85.7%	8.6%	24.8%	-3.4%
Net Profit Margin (%)	5.6%	8.6%	8.7%	9.8%	8.6%
Return on Equity (%)	3.9%	6.8%	7.1%	8.3%	8.1%
Return on Capital Employed (%)	6.1%	9.3%	9.9%	11.4%	11.3%
Dividend Payout (%)	46.5%	37.6%	51.7%	58.3%	56.8%
Dividend Yield (%)	0.9%	0.9%	0.8%	1.1%	0.8%

Source: Equitymaster

Dividend

Tata Consumer Products' impressive growth is further bolstered by its commitment to rewarding shareholders.

The company has a history of consistently paying dividends to its shareholders, solidifying its commitment to investor returns.

In the past five years, the dividend per share has grown at an impressive CAGR of 23.5%.

The company maintains a healthy balance between dividend payouts and reinvesting profits for future growth. Their dividend payout ratio averages 50.2%, indicating a sustainable dividend policy while allowing for continued investment in the business.

The current dividend yield of Tata Consumer Products stands at an average of 0.9%, which may not be the highest dividend yield in the market, but a consistent growth in dividend payout is a more compelling factor for many investors.

Tata Consumer Products Dividend History

Year	Dividend Per Share	Year	Dividend Per Share
2024	7.8	2013	2.2
2023	8.5	2012	2.2
2022	6.1	2011	2.0
2021	4.1	2010	2.0
2020	2.7	2009	17.5
2019	2.5	2008	35.0
2018	2.5	2007	15.0
2017	2.4	2006	12.0
2016	2.3	2005	10.0
2015	2.3	2004	8.5
2014	2.3	2003	7.0

Data Source: Ace Equity

Performance on the Bourses

Tata Consumer Products has been a shining star on the Indian stock market over the past decade.

Its share price has grown at a phenomenal CAGR of 31.8% over the past ten years. This significantly outpaces the Sensex, the benchmark stock market index in India, which grew at a CAGR of 17% during the same period.

The company's market capitalisation, a measure of its total market value, has skyrocketed from Rs 91.52 billion (bn) in 2014 to a staggering Rs 1,033.87 bn in 2024.

This translates to a remarkable CAGR of 28%, showcasing the company's significant growth.

Tata Consumer Product's financial strength, innovation focus, tech adoption, and capable leadership have fuelled its decade-long outperformance, making it an investor favourite despite a high valuation.

The shares trades at a price-to-earnings (P/E) multiple of 79.6x and a price-to-book value (P/B) multiple of 6.5x. This is significantly higher than the industry average and its own five-year averages.

Tata Consumer Products Valuation History (2019-2024)

	Current Valuation	5-year average	Industry average
Price-to-earnings (P/E) (x)	79.6	56.8	28.0
Price-to-book-value (P/Bv) (x)	6.5	3.9	1.4

Source: Equitymaster

While the current valuation might raise an eyebrow, Tata Consumer Products has rewarded investors handsomely over the long term. Take a look at how Rs 100 invested in Tata Consumer Products and Sensex in the year 2000 has grown over the years.

What Next for Tata Consumer Products?

The company is focussing on multi-pronged growth to grow its business.

Its major focus is on strengthening and accelerating its core business by solidifying its sales and distribution infrastructure.

The company is following the 'Rurban' approach, which includes distributors in the rural and urban markets.

It also plans to strengthen its e-commerce and modern trade channels to expand its reach.

Innovation is what drives a FMCG business, and Tata Consumer Products is planning to continue to launch new products across convenience, health and wellness, and premium categories.

It is also exploring new opportunities in organic and inorganic routes to enter new product categories such as cold brew, millets, and high-value spices such as Asafoetida.

Overall, the company's focus is on expanding its product offerings, capitalise on evolving consumer trends to secure a leading position in the Indian FMCG market, and ultimately grow its revenue and profits in the medium term.

Conclusion

Being an integrated food and beverage company, Tata Consumer Products is aspiring for a larger market share in the FMCG market.

For this, it is concentrating on both organic and inorganic routes to expand its product offering.

Given its impressive financial performance in the past, the same strategy is likely to be successful for the company in the future as well.

The company's strong fundamentals, impressive growth trajectory, and commitment to innovation position it well for continued success.

However, it is important to note that being an FMCG company, the company is exposed to the risk of fluctuating commodity prices, which can affect its margins.

Moreover, changing consumer tastes and preferences can also affect the company's growth.

Hence it is important to treat Tata Consumer Products with the same caution as other stocks.

While cautious consideration is essential, TCP's strong fundamentals make it an attractive option for investors seeking a piece of a growing FMCG giant.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...