Tata Consumer Products Limited(TCPL), erstwhile- Tata Global Beverages (TGBL) made it to our radar after :
A) amalgamation announcement between TGBL and TATA Chemicals, wherein the company would emerge as the consolidated FMCG player with a strong product portfolio each which have a dominating market share.
B) followed by the announcement of Sunil A D’Souza’s appointment as MD & CEO to lead the new entity.
Amalgamation would allow the company to have strong positive synergies as opposed to negative synergies that the company had however we were not too sure about valuations at >343/- levels.
Eventually, courtesy of the market crash around end of March, the stock made a low of 214/- but we still did not get our key ‘buy in- buy big’ trigger which came to us when the first Annual Report of the newly amalgamated entity hit the exchanges viz.- Annual Report FY20.
Key highlights from the Annual Report FY 20
The first AR of the newly amalgamated entity- efficient and synergistic
In the backdrop of speculations of the impact of COVID on the general economy, we were fairly certain the key products and markets of the company would not take a major hit, which were:
Product and Market Share
- 30% market share in SALT – Domestic
- Market share in TEA- Domestic
- 21% in Black Tea
- 20% in Tea
Along with a strong pan-India presence of branded water and Starbucks the company had intentions to be a core player in Spices and Beverages pan India investing in product optimisation strategies and efficiency along with “Ready to Eat” products which has a major upside potential within India and overseas looking at the growing popularity of Indian food across the world.
Along with many more visionary comments right through the Management Discussion & Analysis, what got our attention was the valuation.
Valuation by Balance Sheet as on 31st March’ 2020
The balance sheet shows an increase of 2.4079x from 5004.45 Cr to 12050.43 Cr (though a major proportion was attributable to “intangible assets”). While the company’s book value went from 4443.68 to 10850.01 (viz.- 2.44x), however the market took no note (probably) and the common stock was available at close 270/sh.
The availability of an industry leader that has a record of trading at premium multiples being available at 1.76x Book Value, was a valuation comfort we simply could not let go off.
India has a record of having ‘Consumer Good’ stocks trading at exorbitant pricing multiples probably because even now we have a major part of the population (rural and unorganised) where branded and organised products haven’t reached.
The probable growth story companies like Tata Consumer and Nestle can have in the future is only a guess, our’s as good as any one else’s, but we believe not having bought anything expensive we can enjoy the growth story without having to loose our sleep over it.
Though we made our finding of the book value public on twitter at 430/- levels the stock has even since gone up by 41% and we would still not look to book profits.
Standard disclaimer apply–
Please do not take any investing decisions based on this blog, It is purely for informative and educational purposes. Investing in stock markets is risky and you stand to loose capital invested.