In its latest research note dated April 23, 2025, Motilal Oswal Financial Services reaffirmed a BUY recommendation on Tata Consumer Products (TATACONS), projecting an upside of 18% with a target price of Rs 1,360. Despite persistent margin pressure caused by raw material inflation, especially in tea, the brokerage expects margin recovery through calibrated price hikes and cost control. Strong performance in non-branded and international segments, expanding synergies from recent acquisitions, and robust traction in premium product lines position the company well for medium-term growth. Here’s a breakdown of the firm’s outlook, performance, and valuation thesis.

Resilient Revenue Amidst Margin Challenges

Consolidated revenue surged 17% YoY to Rs 46,082 crore in Q4FY25, led by strong momentum in both domestic and international branded segments. However, EBIT contracted 9% YoY, primarily due to input cost inflation in Indian branded beverages, which saw EBIT fall 25% YoY.

Sequential EBIT growth of 13% QoQ was driven by price adjustments in the tea and salt categories. Despite subdued margins, Motilal Oswal expects recovery ahead, aided by better crop outlook in Mar/Apr’25 and additional price hikes rolled out across product portfolios.

India Branded Business: Mixed Dynamics

Revenue from Indian beverages grew 17% YoY to Rs 15,491 crore, supported by a modest 2% volume uptick in tea. However, margins were compressed due to significant tea cost inflation, which was only partially offset by pricing actions. Indian food business revenue also rose 20% YoY to Rs 13,876 crore, bolstered by double-digit growth in salt and Tata Sampann portfolios.

Salt revenue increased 13% YoY, with value-added salt products rising 31% YoY, underscoring Tata Consumer’s success in its premiumization strategy. Tata Sampann posted an impressive 30% YoY jump in Q4, while Tata Soulfull grew 32% during FY25.

Non-Branded Segment Emerges as a Key Profit Engine

The non-branded business, which includes plantation and soluble coffee operations, grew 25% YoY in Q4FY25, reaching Rs 5,006 crore in revenue. EBIT rose 22% YoY to Rs 1,120 crore, reflecting better realizations and operational efficiencies.

The segment delivered a robust 60% YoY revenue growth in the plantation business alone, driven by favorable global pricing and strategic execution. Motilal Oswal believes this segment has now become a core contributor to overall profitability.

International Markets Offer Stability and Upside

Tata Consumer’s international operations reported 13% YoY revenue growth, largely driven by the UK, Middle East, and South Africa. EBIT, however, declined 4% YoY to Rs 1,573 crore, with EBIT margin slipping 240bps to 13.2%.

Nevertheless, full-year data paints a stronger picture. FY25 international EBIT rose 21% with 190bps margin expansion, supported by a 350bps rise in the UK business alone. In the US, coffee revenue jumped 3% and tea sales expanded 14% YoY in Q4FY25.

Strong Growth in Ready-to-Drink and Premium Portfolios

The RTD segment under NourishCo grew 10% YoY in Q4FY25, bouncing back from a weak Q3. Volume growth stood at 17% YoY. Full-year RTD revenue reached Rs 8.35 billion, though impacted by trade price revisions.

Premium RTD sub-brands posted 29% growth in Q4, 19% in FY25. Tata Copper+ and Tata Gluco+ also made notable gains, with the former growing 23% in Q4 and the latter recovering post-competitive restructuring.

NourishCo's deep regional penetration—especially in Andhra Pradesh, Bihar, and West Bengal—offers ample room for growth, with no immediate capex planned, suggesting operating leverage could drive margin expansion.

Synergies from Capital Foods and Organic India Fuel Momentum

Motilal Oswal emphasizes the strategic value of Capital Foods and Organic India, both integrated recently. Together, the businesses reported Rs 11.73 billion in FY25 revenue with a gross margin of 49%–50%.

Combined revenue grew 19% YoY (like-for-like basis)**. Product innovation (e.g., Ching’s Secret Momo Chutney, Desi Khandsari Sugar) and new channel rollouts in food services and pharma have bolstered performance.

Digital and Retail Push Reinforces Growth Strategy

TATACONS remains a leader in e-commerce with a 42% value market share in online sales of packaged beverages. In the physical retail space, Tata Starbucks expanded to 479 stores, with 6 new outlets added in Q4.

The company is also investing in infrastructure and digital transformation, which has helped reduce its working capital cycle in the Indian business to just 1 day, showcasing a sharp focus on efficiency and execution.

Financial Snapshot and Forward Valuations

For FY25, Tata Consumer Products posted:

Revenue of Rs 176,183 crore (up 16% YoY)

EBITDA of Rs 24,794 crore (up 8.5% YoY)

Adj. PAT of Rs 12,823 crore (down 8.1% YoY)

Motilal Oswal projects a CAGR of 8%/13%/20% in revenue/EBITDA/PAT for FY25–27, reflecting a strong recovery and growth trajectory. The company is trading at 57.6x FY27E earnings, with a free cash flow yield of 1.7%.

Target Price and Investor Strategy

Motilal Oswal values Tata Consumer Products using a SoTP methodology, deriving a target price of Rs 1,360 per share, representing an 18% upside from the current level of Rs 1,150.

Key valuation inputs include:

India Branded Business: Rs 1,016.9 billion at 44x FY27 EBITDA

Starbucks JV: Rs 90.9 billion (DCF)

Capital Foods & Organic India: Rs 85.9 billion combined

Coffee (India and Overseas): Rs 76.2 billion

Investment Takeaway

Tata Consumer Products offers a balanced portfolio of domestic resilience and global scalability, with a visible recovery in margins, deepening retail penetration, and accretive acquisitions. Despite short-term profitability pressures, the long-term growth drivers remain firmly intact.

For investors seeking exposure to India’s fast-evolving FMCG consumption story, especially across tea, coffee, salt, and premium food segments, Tata Consumer Products presents a well-diversified, future-ready opportunity.

Recommendation: BUY | Target: Rs 1,360 | Current Price: Rs 1,150 | Upside: 18%

Disclaimer: Readers are advised to perform their own due diligence before making any investment decisions.