Tata Consumer Products Q1FY21 Report Card

Fun Facts

Tata Global Beverages was renamed as Tata Consumer Products, following the merger of the Consumer Products business of Tata Chemicals with itself.

171.5 Mn Kg Branded Sales Volume ‚Äď Tea

1,185.2 Mn Kg Branded Sales Volume ‚Äď Salt

About Tata Consumer

Home to iconic brands, such as Tata Tea, Tetley, Eight O’ Clock, Himalayan, Tata Salt, and Tata Sampann, their portfolio of products represents its interests spanning food and beverage.

With a combined reach of 200 million households in India, they have an unparalleled ability to leverage the Tata brand in consumer products. Their deep understanding of consumers, iconic category-leading brands, and vastness of reach are key drivers of the value proposition. Their JV Tata Starbucks owns and operates cafés in India. They also have a JV with PepsiCo in India, NourishCo*, which markets non-carbonated ready-to-drink beverages that focus on health and enhanced wellness.

With a diverse workforce spread across the world, we have grown through innovation, organic expansion, multiple strategic alliances, and bold acquisitions.

They are in the process of acquiring the 50% stake of PepsiCo in NourishCo Beverages, which is in line with their ambition to create a larger portfolio in the¬†food and beverage industry in India. On the completion of this acquisition, NourishCo Beverages will become a fully‚ÄĎowned subsidiary of¬†Tata¬†Consumer¬†Products Limited.

Tata Starbucks, a 50:50 JV between Tata Consumer and Starbucks has been performing well, with 39 new stores opened during the year. There is now a total of 185 stores across 11 cities in India. The growth in Tata Starbucks was however impacted a bit in Q4, due to the onset of COVID-19, which led to the closure of all stores for more than two weeks in the month of March.

Products

Tea – No. 2 branded tea company in the world, with a portfolio of global leading brands and trusted regional ‚Äėhero‚Äô brands

Black tea | Specialty tea | Cold infusions | Iced tea | Ready-to-drink tea

Coffee РCategory-defining brands that are consistently ranked ahead on quality 

Whole bean | Ground | Gourmet coffee | K-Cup brews  Instant coffee | Coffee capsules

Foods РHousehold in-the-kitchen brands enjoyed all over India 

Salt | Dals and pulses | Besan Ready-to-cook mix | Spices | Poha  | Nutritional solutions

Liquid Beverages – Water, instant energy and RTD wellness brands

Natural mineral water | Nutrient water | Ready-to-serve drink

Out of Home – Social hubs with food and beverages at the core

Coffeehouse chain | Concept tea cafes

Geographies they are present in

Market Leaderships

Performance Highlights

Evolving Trends

Some Thought Processes

Indian Consumption Story

India‚Äôs food and beverage consumption in 2019 was estimated at ~Rs. 30 Lakh Crores. The ‚Äėin-the-kitchen‚Äô segment, comprising staples, spices, and condiments, dairy, and others, accounts for ~70% of the food and¬†beverage basket, or ~Rs.¬†21¬†Lakh Crores. However, the share of organized players in this segment is less than 10% and remains largely untapped. The other segments, ‚Äėon-the-table‚Äô (comprising spreads, sauces, and others) and ‚Äėon-the-go‚Äô (comprising snacks, ready-to-eat options, and others) have traditionally seen a larger play by organized players, but their offerings are skewed towards indulgent snacking products. The industry is also witnessing a shift in consumer preferences, with demand for healthier, better quality, and more affordable food and drink options growing across all three¬†segments.

Evolving Consumer Behaviour

The rising affluence of Indian households will lead to premiumization and higher demand for products that are healthy, provide well-being, and are convenient to use. 1 in 2 households in 2030 will belong to the high and upper-middle-income segments (compared with 1 in 4 households today).

India‚Äôs young consumer – India will witness the rise of the Gen-Z consumer ‚Äď tech-savvy, aspirational, and desirous of engaging with brands across multiple¬†channels.

Value Creation workflow

Stakeholder Value Creation Thoughts

Risks and mitigation thoughts

Board of Directors

About the CEO

Appointment: 4th April 2020

Experience: In his previous role, he served as Managing Director of Whirlpool India Ltd. for over four years. Prior to this, he spent almost 15 years at PepsiCo, where he held several leadership roles. During his stint at PepsiCo, he handled all commercial aspects of the company’s food and beverage portfolio and successfully led the business in a large cluster of Asian countries.

He began his career at Hindustan Unilever Ltd. in 1993. With over 26 years of rich experience, he has strong domain knowledge of the consumer products business with a distinct focus on strategy, growth, and execution. He is an engineering graduate from the University of Madras and holds a post-graduate diploma in management from the Indian Institute of Management, Calcutta.

He is also a Director on the Boards of Tata Starbucks Private Ltd. and several other Tata Consumer group companies.

10 Year Financial History

Management Discussion & Analysis

Industry Overview –¬† The organized Indian Staples industry is ~Rs. 88,000¬†Crores in 2019. It is largely unorganized, with the share of branded players at less than 10%.

Salt – Within the Staples category, the Indian Salt market is estimated to be ~Rs. 7,000 Crores with unorganized players forming ~12% of the category by volume (a stark difference to the rest of the category)

Pulses – India is the largest producer, consumer, and importer of pulses. The total Pulses and Derivatives industry is estimated to be ~Rs. 1,50,000 Crores in FY 2018-19 with only 1% of the segment being branded. The low penetration is primarily led by a host of factors including low perceived value addition by packaged players (leading to consumers unwilling to pay price premium) and low consumer concern regarding adulteration in unbranded. However, the trend has been changing in the last few years with consumers preference for better quality packaged products, the launch of differentiated products (such as Tata Sampann Unpolished dals, Tata Sampann Low Oil Absorb Besan, an organic range of pulses), and growth in the number of organized players entering the category (and thereby, expanding the base).

Spices –¬† India is the world‚Äôs largest producer, consumer, and exporter of spices and accounts for almost half of the global¬†spice¬†trade. The total Spices industry is worth ~Rs. 60,000 Crores, with the branded Spices industry, estimated to be ~Rs.¬†18,000 Crores in FY 2018-19, and is highly fragmented with the presence of many regional players. The branded segment is growing at a CAGR of ~15%. Straight/Pure Spices form ~80% of the segment (with a high-competitive intensity from unorganized players), while blended spices are mainly branded with consumers choosing to be brand loyal. However, there is an increasing demand for branded products, with consumers looking at improved quality products in straight/pure spices (with a better quality of raw materials used) and increasing adoption of blended spices in the kitchen (higher convenience and consistency of taste).

Snacks/Ready‚ÄĎto‚ÄĎCook –¬† Snacks/Ready-to-Cook is an Rs. 40,000 Crores segment with a high share of branded play (Ready-to-Cook is all-branded in comparison to Snacks). The growth is being driven by more players entering the segment and offering consumers different taste choices including healthier food and convenience (such as Tata Sampann Chilla Mix).

The Foods Business witnessed robust growth of 12%, in FY 2019-20, led by the flagship brand Tata Salt and Pulses and Spices through the Tata Sampann brand.

Tata Salt is the market leader in the branded salt category with a significant share of ~30% of the entire category (as per Nielsen). During the year, Tata Chemicals also increased the Salt manufacturing capacity in its Mithapur plant from 1 million tonnes to 1.2 Million tonnes ‚Äď which will provide support to Tata Consumer‚Äôs ambition in growing the business.

They are also doing a number of pilots in the new Foods category, such as Nutrimixes/Chilla, Poha (High Fibre White Rice and Red Rice), pulse-based snacks, and low sugar Tata Nx, to name a few. The aim is to do a limited launch in select channels (across e-commerce/ modern trade format outlets) or select geographies with some awareness drive to get customer feedback on the product and gauge levels of customer acceptance (repeat buy) before a larger national rollout.

Beverages

Tea ¬†– As per Euromonitor estimates, the global hot tea category is a ~USD 45 Billion industry. Black/every day black tea forms the largest category sub-segment globally ‚Äď but is declining across different international markets. Non-black tea (Green, Fruit & Herbal, Decaf, Specialty, Cold Infusions, etc.) is growing and in some markets like Canada, has become larger than black tea.

Coffee – ¬†Retail hot coffee is ~2x the size of Tea at USD 88¬†Billion. The USA¬†is the largest coffee market ‚Äď estimated at ~USD 12¬†Billion ‚Äď and has also been leading growth in the category.

Coffee has four sub-segments: Roast & Ground, Beans, Pods, and Instant Coffee. Affordable ground and instant formats are more prevalent in early-stage markets like Asia, Africa, and the Middle East (where Tea is the primary beverage of choice) while Roast & Ground and Pods are more prevalent in countries with an evolved café culture. Our largest play in coffee is in the USA with the Eight O’ Clock coffee brand.

Q1FY21 Concall Takeaways (Posted As it is)

“Consolidated EBITDA grew by 37% to INR 486 crores. India Beverages business, which now includes NourishCo for which we’ve completed the acquisition, grew by 11%. On a stand-alone basis, our packaged tea, the branded tea business grew by 8% in value, and 4% in volumes. India Foods grew 8% in volume, 19% in value. Our international business, excluding Foodservice, grew by 23% in value, with volume growth of 27% in coffee and 4% in tea. 21% growth in regular black in the U.S., 14% in coffee U.K., while tea was flattish overall, but Fruit & Herbals was a significant uptick. Canada, a significant rise in all types of tea, 19% in black, and 32% in specialties. India, the numbers do show a total decline of 5.4%. But that said, as I had mentioned earlier, we saw trends coming back at the end of June. For the month of June, growth was…

All factories and plantations are now operational

When we announced the merger in May, we had said that we would be — we would expect to realize roughly 2% to 3% of the — then combined India branded revenues over the next 18 to 24 months. We are broadly on track to do this. The — some of these synergies will start flowing in, in the back half of this year. But over a period of 18 to 24 months, we expect all of these synergies to flow through.

Going forward, we are cautious in our outlook for tea prices, as Sunil mentioned.

So Abneesh, let me take that. I think we have very clearly said in the near term, the focus is to make sure that we’ve got 2 strong businesses both Beverages and Foods, which we need to put together into a common engine, and we remain extremely focused on that. And I think Ajit alluded to that, that they’re having ambitious targets of finishing this entire integration by December. Once we have a strong engine, which includes a strong front end in terms of sales and distribution, a strong back end in terms of warehousing, logistics, transport, et cetera, I think after that, plugging and playing with any category is a very easy thing to do. That said, we are immensely focused on, I think you saw it in the priorities to raise the quotient of new products development and drive innovation in the portfolio, the portfolio that we operate in. So you should see a ramping up of new products within the segments that we operate. We will also — I have also said we will expand our playing field. In the short term, you could probably see us branching out into adjacencies in the categories that we operate in. And in the longer term, obviously, the intention is to become a full-fledged FMCG company, playing across multiple categories. But first, we’ve got to get our whole own integration proper build the categories that we operate in, move out into adjacencies where we can leverage the capabilities that we have, and then branch out into a full FMCG piece, one step at a time, if I may.

 We will not chase volume for the sake of volume. We will chase profitable growth. As our cost of inventory keeps going up, we will make sure that we translate it into the pricing.

The distribution system out there is evolving on a consistent basis. 5 years back, online did not exist. 5 years back online B2B did not exist. There were certain modern trade formats that did not exist. I would say, yes, Reliance has flagged off very strong ambitions in expanding their distribution to kiranas and making sure that they play the supplier role, if I may, to the Kirana stores. As they expand their business, I think we’ve got to make sure that we partner with them and we drive our brand into their system and reach the Kirana store. So wait and watch because they’ve started the pilot in Mumbai and now expanding nationally. They are already listed with them. And they do carriers. I think the critical piece is to stay focused and make sure that, a, we — our supply chains are robust to cater to them as they expand their network. But more importantly, keep a laser focus on the consumer, make sure that you have a product, price, entire proposition appeals to the consumer. So the pull-through happens with the Kirana stores/modern trade.¬†¬†¬†¬†¬†¬†¬†¬†¬†

See we’re in the space of selling branded products, and to sell branded products, there are 2 or 3 critical elements: number one is sales and distribution; number two is A&P, and number three is innovation. We remain focused on all of the 3. You would see some ups and downs in a short burst. But overall, we do believe that we have to spend to build our brand. So it is not that we are cutting out A&P for the medium-term or even the shorter term. We would see an increase in A&P spend as we go forward to make sure we are strengthening our brands with the consumers.”

Sustainable and Eco-friendly packaging

They have also framed Extended Producer Responsibility (EPR) for the collection and reprocessing of plastic packaging waste on a brand-neutral basis across key markets. In FY 2019-20, the India Beverages business achieved 70% and the India Foods business achieved 98% collection of plastic packaging waste. The target is to secure 100% collection and disposal of plastic packaging by 31st December 2020 in India

Consolidated Balance Sheet

Consolidated Profit & Loss

Consolidated Cash Flows

The company’s cash flow from operations increased from 210 cr in FY19 to Rs 1082.2 Cr in FY20. Its free cash flow increased from Rs -72.41 Cr in FY19 to Rs 922.65 Cr in FY20.

More Annual report takeaways here. Our complete media coverage here.

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