Tata Consumer Products valuations 'expensive', upside limited: CLSA

CLSA expects Tata Consumer to consolidate its recent gains at the current price-to-earnings multiple of 50 times, including acquisitions, which is at an 11% premium to the brokerage's staples coverage, excluding ITC.

Tata Consumer's presence in high-growth categories like spices, pulses, snacks, breakfast, cereals, beverages and ready-to-eat food opens up a significant long-term growth opportunity, according to CLSA, who also said that premiumisation could also be a key growth driver for its core categories of salt and tea.

The brokerage is projecting Tata Consumer's sales to grow at a Compound Annual Growth Rate of 15% over the financial years 2023 to 2026, including the Capital Foods acquisition. Excluding the deal, the CAGR comes down to 11.4%.

However, CLSA said that Tata Consumer's Return on Equity (RoE), at 7.6%, is the lowest among their consumer coverage average of 46%. The brokerage also believes that the recent acquisition of Capital Foods and Organic India will likely drag return ratios further over the medium term.

"Faster than expected RoE improvement is a risk to our view," CLSA said in its note.

Shares of Tata Consumer Products are trading 3.2% lower at ₹1,149.1. The stock is the top loser on the Nifty 50 index. Over the last 12 months, the stock has risen 64%.