The brokerage says the Tata group wants to participate in India’s consumption story. To realize its vision, the group has merged Tata Chemical’s consumer business with Tata Consumer Products and also brought in a new CEO and MD to steer the company in the right direction.
The company currently has net cash of Rs 13 billion with expectation of free cash flow generation of Rs 7-8 billion for FY21E. Thus, the cumulative cash balance is likely to reach Rs 20 billion by end-FY21E. The new CEO says these funds would be deployed toward organic/inorganic acquisitions in the adjacent category of the food and beverages space in the near term.
Investment Rationale
The brokerage says the Tata group is clearly focused on leveraging its brand and participating in India’s Rs 30-trillion consumption story, for which it has merged Tata Chemical’s consumer business with Tata Consumer Products. The merger is in sync with the Tata group’s focus to create a single FMCG-focused company.
Quarterly Results
It also offers multiple synergies, including higher outlet coverage, focused new product development, stronger cash flow generation and scale efficiencies. Moreover, in the short-to-medium term, the new MD and CEO, Mr Sunil D'Souza, has clearly laid out his plans. His focus is on setting up the right sales and distribution channels and driving cost efficiencies. The brokerage values the stock on SOTP basis to arrive at the target price of Rs 431.
Financials
For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 2405.03 crore, down -3.53 per cent from last quarter sales of Rs 2492.96 crore and up 35.46 per cent from last year's same quarter sales of Rs 1775.46 crore. The company reported net profit after tax of Rs -50.21 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 34.69 per cent stake in the company as of March 31, 2020, while FIIs held 17.08 per cent, DIIs 21.82 per cent and public and other 26.42 per cent.
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