Earnings Outlook
Lower tea sales may cap Tata Consumer PAT growth at 0.6%
This story was originally published at 14:13 IST on 16 October 2024
Register to read our real-time news.Informist, Wednesday, Oct. 16, 2024
By Avishek Rakshit
KOLKATA – Decline in tea sales volumes and the monsoon floods hitting consumer demand may lead Tata Consumer Products Ltd.--India's second largest tea retailer--to report a marginal 0.6% on-year growth in its consolidated net profit at INR 3.4 billion for Jul-Sept, according to the average of estimates from eight brokerages. Its consolidated revenue is expected to increase by 16.5% on-year to INR 43.5 billion.
Sequentially, the net profit is seen rising by 17.2%, but the revenue growth may remain flat. The company had reported a net profit of INR 3.4 billion in the year-ago period and INR 2.9 billion during Apr-Jun. Its revenues were at INR 37.3 billion in the year ago period and INR 43.5 billion during Apr-Jun.
The company will announce its earnings for Jul-Sept on Friday.
Among the eight brokerages, Nirmal Bang Equities Pvt. Ltd. has projected the highest net profit for Tata Consumer at INR 3.6 billion and Kotak Institutional Equities the lowest at INR 3.1 billion. The estimates for revenue range from INR 42.4 billion by Motilal Oswal Financial Services Ltd. and INR 45.4 billion by KR Choksey Research.
In a report, brokerage Nuvama Wealth Management Ltd. said that Tata Consumer’s beverage business in the country, which largely comprises tea and accounts for 30% of its overall business, is likely to report a 4?cline in revenue backed by a 3?cline in volume. Kotak Institutional Equities also pegged the volume decline in tea similar to Nuvama Wealth Management but anticipated a 1?cline in revenue from tea sales.
However, brokerages like Sharekhan Ltd. estimate a 6% growth in the overall beverages business in India.
Despite measures like new product launches tailored for specific regions, Tata Consumer’s tea business has been feeling some heat from regional players. In the Apr-Jun period, despite the company’s efforts to scale up the tea business, it reported a flat growth in tea volumes.
Some brokerages expect Tata Consumer’s foods business in India to grow by 14%. For the past few years, the company has been focussing on the foods segment to grow its business and enter new foods categories where it hitherto was absent. However, the projected growth rate in the foods business could be lower by 2% compared with the year-ago period. Brokerages said that the Sampann and Soulfull brands are projected to perform well and drive growth in the foods segment.
With the company popularising value-added salt which ensures better revenue and margins, brokerages anticipate a 6.5% revenue growth in the salt category. Tata Consumer is the market leader in edible salt in the country.
For the non-branded business, which largely comprises solubles and plantations business, the company is expected to report a 30% revenue growth due to high realisations in coffee, Kotak Institutional Equities said. Brokerages said that robusta coffee prices are at a five-decade high.
Tata Consumer is expected to report earnings before interest, tax, depreciation, and amortisation of INR 6.4 billion, according to the average of estimates by seven brokerages. The estimates on EBITDA range from INR 5.8 billion by Motilal Oswal Financial Services and INR 6.9 billion Nirmal Bang Equities.
At a time when tea procurement costs for tea retailers like Tata Consumer and Hindustan Unilever Ltd. are on a steep rise, Nuvama Wealth Management said that the former can reap some cost benefit due to lower priced tea inventory. At the same time, the company may raise tea prices going forward.
Sector analysts will be tracking tea price hikes by Tata Consumer going forward. In case it is unable to pass on rising costs to consumers, margins are likely to be under pressure in days ahead. On other hand, demand conditions remained muted due to floods and incessant rains affecting rural consumption and hence, price hikes may lead to loss of sales volume.
At 1239 IST, shares of Tata Consumer traded 0.6% down at INR 1,108.4 on the National Stock Exchange.
Following are the Apr-Jun earnings estimates of Tata Consumer Products based on reports compiled by Informist from six brokerage houses:
|
Broker Name |
Net Sales (in INR million) |
Net Profit (in INR million) |
EBITDA (in INR million) |
|
Elara Securities (India) Pvt Ltd |
43,019.00 |
3,274.00 |
6,254.00 |
|
Kotak Institutional Equities |
43,097.00 |
3,142.00 |
6,229.00 |
|
KR Choksey Research |
45,429.00 |
3,530.00 |
6,704.00 |
|
Motilal Oswal Financial Services Ltd |
42,382.00 |
3,365.00 |
5,844.00 |
|
Nirmal Bang Equities Pvt Ltd |
44,465.00 |
3,590.00 |
6,892.00 |
|
Nuvama Wealth Management Ltd |
42,973.00 |
3,388.00 |
6,223.00 |
|
Sharekhan Ltd |
43,090.00 |
3,460.00 |
|
|
YES Securities (India) Ltd |
43,550.00 |
3,464.00 |
6,402.00 |
|
Average |
43,500.63 |
3,401.63 |
6,364.00 |
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Akul Nishant Akhoury
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