Target: ₹1,385
CMP: ₹1,222.90
Our analysis of Tata Starbucks financials over FY14-24 indicate (1) It had revenue CAGR of 29 per cent over FY14-24 and store count CAGR of 26 per cent. The revenue/store has remained flat at around ₹3.5 crore. The gross margins of Tata Starbucks (TS) and Starbucks Corporation (SBUX) are similar at around 67 per cent.
We believe TS can potentially reach over 20 per cent EBITDA margin (SBUX EBITDA margin: around 18 per cent) and (3) TS plans to reach 1,000 outlets by FY28 (421 in FY24). Plan appears ambitious, probably triggered by (1) vacuum caused by partial exit of Café Coffee Day (though TS is far more premium positioned) and (2) rise of new chains (Blue Tokai, Third Wave etc).
We note the working capital requirements seem low for this business as the working capital days have largely remained negative over the years. Higher creditor days (average of 101 days over FY21–23) reflect TS’s ability to leverage its strong brand equity against suppliers. We model EV of Tata Starbucks at ₹21,100 crore (EBITDA multiple of 24x). In TCPL’s SoTP, we attribute ₹91/share for Tata Starbucks.
Risks: Higher-than-expected competitive pressures, steep increase in commodity prices and failure of new products.