Tata Consumer Products has demonstrated notable growth in the competitive FMCG sector, driven by strategic acquisitions and a diverse product portfolio. In contrast, Nestle India has faced challenges, including sluggish urban demand and rising product prices, which have impacted its recent financial performance. These developments suggest that Tata Consumer Products may be well-positioned to outperform Nestle India in the coming years.
Price Movement
With a market capitalization of Rs.99,137 crore, the shares of Tata Consumer Products Ltd closed at Rs.1,001.90 each as of March 28, representing a 8 percent drop in a year from Rs.1,096.2 per share. The stock has encountered challenges, including factors impacting the company’s profit margins and growth prospects.
With a market capitalization of Rs.2.17 lakh crore, the shares of Nestle India Ltd closed at Rs.2,247.00 each as of March 28, representing a 14 percent drop in a year from Rs.2,622.33 per share. The stock is facing challenges from rising raw material costs, inflationary pressures, and increased competition in the FMCG sector.
Business Overview
Tata Consumer Products Limited (TCPL), a subsidiary of the Tata Group, is a leading FMCG company in India, offering a diverse portfolio that includes brands like Tata Tea, Tetley, Tata Salt, and Eight O’Clock Coffee. The company operates across various categories such as tea, coffee, water, salt, pulses, spices, ready-to-cook and ready-to-eat offerings, breakfast cereals, snacks, and mini-meals, catering to a wide range of consumer preferences. TCPL’s products are available in over 40 countries, reflecting its extensive global presence and commitment to quality.
Nestle India, a subsidiary of Nestle S.A., has established a prominent presence in the Indian market over the past century. With a commitment to improving the lives of consumers, Nestle India offers a wide array of products, particularly well-known brands such as Maggi, Nescafe, KitKat, and Milkmaid. The company places a strong focus on nutrition, health, and wellness, aiming to provide consumers with products that promote a healthier lifestyle.
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Manufacturing and Distribution Network
Tata Consumer Products Limited (TCPL), a subsidiary of the Tata Group, has expanded its distribution network from 0.5 million outlets in 2020 to 1.5 million outlets currently. The company now covers over 25,000 villages in India and has increased its presence in e-commerce and modern trade, which contribute to over 20 percent of its sales. TCPL is integrating its distribution network, which spans over 70,000 retail outlets, to improve efficiency. Additionally, the company plans to onboard 10,000 new digital retail partners by FY26.
Nestle India operates nine manufacturing facilities and four branch offices across the country, with a distribution network that spans over 1 million retail outlets nationwide. This extensive network ensures that Nestle’s products reach both urban and rural markets. The company is also focused on expanding its presence in the e-commerce sector, which further strengthens its reach and delivery capabilities in the digital era.
Brokerage Outlook
JM Financial’s ratio trade suggests that Tata Consumer Products (TATACONS) is expected to outperform Nestle India (NEST). The current ratio between the two is 0.4294, with a target of 0.4723 and a stop-loss below 0.4079 on a closing basis.
Over the past year, TATACONS dropped 14 percent, while NEST fell by 12 percent, leading to a -2 percent return difference. Historically, this difference has ranged between -6 percent to -2 percent, and it is expected to converge again.
On a 1-month basis, TATACONS declined by 6 percent, while NEST dropped by only 2 percent. TATACONS has had stronger seasonal performance in Q2CY compared to NEST, with an average return of 10 percent in the past 10 years versus NEST’s 5 percent.
Financial Performance
For the quarter ending December 2024, Tata Consumer Products Ltd reported revenue from operations of Rs.4,444 crore in Q3, reflecting a 4 percent increase compared to Rs.3,804 crore in Q3 FY24. However, Profit After Tax (PAT) decreased by 6.6 percent, reaching Rs.282 crore, down from Rs.302 crore in the corresponding period of the previous year.
For the quarter ending December 2024, Nestle India reported revenue from operations of Rs.4,780 crore, reflecting a 4 percent increase compared to Rs.4,600 crore in the same quarter of the previous year. Similarly, Profit After Tax (PAT) increased by 6.1 percent, reaching Rs.696 crore, up from Rs.656 crore in the corresponding period of the previous year.
Conclusion
Tata Consumer Products and Nestle India are prominent players in the Indian FMCG sector, each with its unique strengths. While Nestle India boasts a well-established brand portfolio and consistent growth, Tata Consumer Products has made significant strides in expanding its market reach and product diversification. The decision between the two depends on an investor’s risk tolerance and investment strategy, with Tata Consumer Products appealing to those seeking potential growth and Nestle India offering stability.
Written by – Siddesh S Raskar
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