Tata Consumer Products Limited (TATACONSUM)

Hi Suyog,

I took a look into their balance sheet and try to figure out why the ROE is very low. See my findings below,

  1. TATA Consumers have very high Reserves and Equity Share capital. I have drawn a comparison between Dabur Vs Godrej Consumer

It is 14K Cr Vs 7K Cr (Dabur) Vs 10K Cr (Godrej)

Since Reserves and Share capital goes into the denominator a higher reserve can also mean lower ROE

  1. The next is the numerator which is the Profit Margin. TATA has a lower Profit margin in comparison to the other two.

See Screenshots of NPM % for the last 10 years
TATA

Dabur

Godrej

TATA has a lower Profit Margin due to High material cost which can be attributed to low margin in their Product lines (Like Dhal, Salt) or high raw material cost (Like Tea)

Let’s assume TATA Consumer has reserves similar to Dabur then their ROE would be 13%. But High reserves also are an indicator that it is not being deployed for generating more returns.

To me, it seems to be a concern as TATA has a PE of 78 Vs 54 of Dabur and 46 of Godrej. There is high expectation against this stock with renewed interest due to

  1. Group MD Chandrashekar who is passing new blood into every division
  2. Clarity among divisions and clear segregation of operations (SALT moving from Chemicals etc)
  3. New CEO Sunil D’Souza from Whirlpool
  4. Acquisitions like Soulful, TATA Smart Foods(Inside group acquisition), BigBasket(Not part of TCPL) can be used to leverage TCPL products
  5. Starbucks at 256 Stores and EBITDA Positive with plans of adding 40 Stores/Per year for next few years.

So I’m looking forward to FY22 to see how TCPL lives up to its promises.

Disc: Invested
You can have a look at my holdings here: Kamal's Retirement Porftolio - #13 by casperkamal

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