Weak tea biz a drag on domestic sales performance of Tata Consumer Products

International margins fall sharply on cost inflation, price lag in December quarter

Weighed down by margin pressures in the international business, Tata Consumer Products delivered a weaker-than-expected performance in the December quarter of the 2022-23 financial year (Q3FY23).  Even on the sales front, the India beverages segment, the largest vertical in its portfolio, delivered a fall in revenues as compared to the year ago quarter.  

Revenues of the India packaged beverages (tea, coffee) business was down 9 per cent year-on-year (YoY). The tea business reported a volume decline of 5 per cent as compared to the three year compounded annual growth rate of 3.1 per cent.

The weak performance, according to the company, was on account of a delayed winter, market share loss of 113 basis points (bps) YoY and weak macroeconomic environment in some of the key states in the north and east which are major markets for Tata Consumer.

However, January saw a bit of a revival, given the winter in north India. In the medium term, the company is eyeing a mid-single digit volume growth while in terms of value, the same is pegged at high single digits.

Led by the salt segment, the India foods business put out a strong performance registering a growth of 29 per cent. The three year revenue growth for the segment is at 19 per cent. Despite a high base, the salt segment posted a 27 per cent growth on the back of price hikes (prices went up by one third), uptick in the premium salt portfolio (rock salt up 97 per cent YoY), market share gains of 90 bps despite the increase in prices. In addition to the focus on premiumisation, the company is creating a portfolio of value added salt products to strengthen and expand the market. The Tata Sampann portfolio posted a 37 per cent increase, with growth across staples and dry fruit segments.

The company indicated that growth businesses comprising NourishCo (mineral water, glucose drink), Sampann (staples) and Soulful (packaged foods) grew 53 per cent in the quarter and now account for 13 per cent of India business revenues.

Growth in the international business came in at 4 per cent due to a weak show in the UK and US markets while the Canada business reported mid-single-digit growth. The UK business grew 1 per cent on a constant currency basis due to inflationary pressures and currency devaluation. The US coffee growth, too, was muted at one per cent on a constant currency basis.

Segment profits fell 3.3 per cent in Q3 and were dragged down by a 38.6 per cent decline in profit of its overseas operations. The international beverages margin was down 657 bps YoY to 9.5 per cent. The stress in international margins was due to input cost inflation, currency weakness, and lag in pricing. The company’s global business accounts for 28 per cent of its consolidated revenues.

 

Margins at the gross level were down 217 bps YoY while the impact at the operating level was limited to 133 bps to 12.9 per cent partly due to rationalisation of advertising spends that were lower by 7 per cent.

PhillipCapital’s Vishal Gutka and Binay Shukla have maintained a ‘buy’ rating on the company after the results with a target price of Rs 860, valuing it at 50 times its FY25 earnings per share.The analysts expect operating margin to rise (annual operating profit growth of 12 per cent during FY22-25) as the troika of price hikes, premiumisation and cost efficiencies program, should negate the adverse impact of higher raw materials to a large extent.