Tata Consumer Products has been making a buzz for a while with its merger announcements. The company has been trying to up its game in the FMCG (fast-moving consumer goods) industry for the past few years. The stock has given over 144% returns to its investors since January 2020. And in the past month, the stock has been up 21%.
According to many experts, Tata Consumer Products is going in the right direction and is likely to become a key player in the FMCG market. The recent announcement of Tata Coffee’s consumer business merger with Tata Consumer Products is a step towards consolidating its FMCG businesses. Besides this, there are multiple points to support the company’s ambition.
While the competition in Indian FMCG is high, with players like HUL in the market, how is Tata Consumer different?
Brand recognition, consolidation of business segments, and distribution are key factors that distinguish Tata Consumer Products from others. But is it enough for the company to carve a solid market share in the FMCG space? Here are both the positives and negatives of the stock and its outlook.
Tata Consumer Products is a well-diversified consumer goods company offering various products in the food & beverages segment (F&B). These include Tata Tea, Tetley, Tata Salt, Sampann (pulses and spices), snacks, coffee, water and ready to drink (RTD) or ready to eat (RTE). It also has a retail segment, which comprises premium cafes in partnership with Starbucks in India. It is one of the major players in the FMCG market in India.
The company operates in the domestic market (India) and international markets, including the US, UK, and Canada. It has a brand presence in over 40 countries.
International beverages (tea and coffee) contribute to about 31% of the company’s branded business revenue as of 3QFY22. India’s food and beverage business bring up about 69% during the same period.
Let’s understand the company better before investing.
While Tata Consumer Products is one of the major players in the FMCG market, particularly in F&B, the competition is stiff in this space. Here is how the company stands apart in the industry.
Tata Consumer Products has been consolidating its existing consumer operations under one umbrella to build a strong consumer business in the FMCG space.
Thus, in the past two years, Tata Consumer Products has been aggressively expanding in all categories of FMCG, particularly in F&B segments.
The core business for Tata Consumer Products is primarily driven by tea and salt. With the integration of Tata Chemicals’ consumer business in 2020, the combined entity is likely to gain a better market position and distribution network. Further, consumers’ rise in branded consumption is expected to benefit the company. Here is how:
According to multiple reports, 60% of the market share in India is in unbranded tea consumption. For the two leading players in the industry – Tata Tea and HUL, this gives a lot of room for expansion. Considering Tata Tea’s presence across the tea segment – economy, mid-income, and premium classes, it could be easier for the company to penetrate the market when compared to HUL or other regional players.
Further, the outbreak of covid has accelerated customers’ preferences for healthy eating and wellness. This shift can be seen in tea categories like green tea and speciality tea. Tata tea includes brands catering to health and wellness segment customers. The company has also introduced a range of herbal teas and teas for immunity building like Tata Teal Tulsi, Tetley Immune, Tata Tea Care, and Tea Veda to cater to health-focused customers. Last year, the company launched Tata Tea 1868, a luxury tea product attracting HNIs customers. These points to the company’s expanding tea market penetration in India.
Tata Consumer Products’ Salt is a dominant player in the salt market in India. Though there is competition, Tata Salt holds a leading position as many industry experts. This is thanks to its presence across all consumer segments – economy (Tata salt and i-shakti), mid-income (Tata Salt Plus, Tata Lite) and premium (rock salt and black salt). And there is still scope for expansion in tier II and tier III cities where loose and unbranded salts are still prevalent. Further, Tata Lite and Tata Salt Plus help cater to the needs of health-conscious consumers, which are increasing in numbers. This helps in capturing that market for the company.
While other players like Aashirvaad and Pantanjali are slowly picking, Tata Salt is likely to be able to maintain its market share and possibly expand as well. This is mainly thanks to its extensive and expanding distribution network.
Now that you have understood the company’s main factors, let’s understand how it differs from competitors. What is it that the company is doing different that could enable its growth? The company is diversified into various business segments, and there are a few points strongly suggest its prospects.
Before you as an investor consider the stock of Tata Consumer Products, keep the following points in mind:
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Research Analyst: Bavadharini KS