The Tata Consumer Products Ltd stock rose by over 4% on Thursday, a day when the Nifty 50 index was marginally down. Not without reason. The company has released an update on covid-19 impact and has indicated that business is gradually returning to normalcy. Plus, commentary on the international business demand is encouraging.
Since mid-March, Tata Consumer’s India operations saw disruptions owing to the covid-19 crisis. Commenting on the same, the company said operations have started resuming partially since early April. Initially, it saw a mixed response across channels. In the international business, the company’s factories have been running flat out. Here, Tata Consumer saw higher demand driven by the spike in in-home consumption.
For financial year 2020, on a consolidated basis, out of the company’s branded business, the India business accounted for 59% of revenues. International business contributed the remaining revenues. Branded business forms about 90% of the company’s revenues.
Notwithstanding the adverse impact of the covid-19 disruption, the outlook for Tata Consumer appears relatively decent given these trying times. Analysts expect the company’s core categories in India—tea and salt- to be fairly resilient in this financial year. The international business is witnessing better in-home demand, as mentioned earlier.
During the March quarter, the merger of Tata Chemicals’ foods business with Tata Consumer was concluded. The merger is expected to offer synergies in distribution and costs savings. “Tata Consumer is the de facto vehicle for Tata Group’s FMCG ambitions. The company is firmly on a turnaround path as reflected by steadier growth and profitability over the past few quarters,” said analysts from Kotak Institutional Equities in a report on 15 May.
Some of that optimism is visible in the share price. The Tata Consumer stock has appreciated nearly 80% from its 52-week lows seen in March. As such, valuations are not cheap what with the stock trading at 37 times estimated earnings for financial year 2022, based on Bloomberg. Plus, some covid-19 related stress cannot be ruled out in the near-term. According to Motilal Oswal Financial Services Ltd, “Although the supply chain issue due to covid-19 would pose a challenge to scale up the business in the short term, it is likely to recover in the medium term.”