Analyst Concall
Tata Consumer sees pressure from tea prices easing in 2 qtrs
This story was originally published at 21:55 IST on 30 January 2025
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--Tata Consumer: Salt volumes grew in Oct-Dec despite price hikes
--CONTEXT: Comments by Tata Consumer's mgmt in post-earnings analyst call
--Tata Consumer: Have INR 8.8 billion in cash on the books
--Tata Consumer: Expect pressure on margins to ease going ahead
--Tata Consumer: Tea prices rose 25-30% on year in Oct-Dec
--Tata Consumer: Took price hikes across tea segment
--Tata Consumer: Need to keep reacting to rise in coffee prices
--Tata Consumer: Costs, margins hit owing to high tea costs in Oct-Dec
--Tata Consumer: Pressure from high tea prices may ease over next 2 quarters
--Tata Consumer: Cautious on coffee inventory due to uncertainty over prices
--Tata Consumer: Coffee prices at 50-year high, not sure where is it going
--Tata Consumer: Will continue to take price hikes in tea when possible
--Tata Consumer: Tea volumes to grow in mid single digits in long term
--Tata Consumer: Tata Sampann profitability may reach 12-15% going forward
By Steffy Maria Paul and Sunil Raghu
MUMBAI – Tata Consumer Products Ltd. is hopeful that the pressure on its margins on account of high tea prices will ease over the next couple of quarters, the management said in a post-earnings call with analysts Thursday. The company, among India's largest tea retailers, grappled with inflation to the tune of 25-30% in tea prices during the reporting quarter. The company expects the impact of tea prices to reduce in the next few quarters either on account of a good harvest, which may result in tea prices falling, or with other players taking matching price hikes in the category.
During the December quarter, Tata Consumer had raised prices across segments to offset the rise in tea prices. The company said it will continue to raise prices in the segment whenever the opportunity presents itself. The company's volume in the tea segment grew 7% in the quarter. The company expects volume in the segment to grow in the mid single digit in the long term.
Tata Consumer's consolidated earnings before interest, tax, depreciation, and amortisation for the quarter was flat on year, while the EBITDA margin contracted 210 basis points to 13% on account of inflation in tea prices. Assuming tea prices were at the same level as in the year-ago quarter, the consolidated EBITDA margin for the quarter would have expanded 75-100 bps, the company said.
The average prices for Arabica and Robusta varieties of coffee were higher in the quarter. Arabica coffee prices rose 64% on year during the quarter, and the prices of Robusta coffee rose 86% on year. Coffee prices are at a 50-year high, the company said, adding that it was unsure where the prices were headed.
The company will be watchful of its coffee inventory and will react to changes in prices, it said. The coffee segment of Tata Consumer grew 28% in the reporting quarter.
The company's non-branded business, which includes plantation and extraction operations for tea, coffee, and other produce, reported revenue growth of 8% for the quarter, led by strong coffee realisations in the plantations business, which grew 36% on year.
The company said its volumes in the salt segment improved in the quarter despite price hikes. The segment's revenue rose 7% and volumes rose 1% during the quarter. The value-added salts business grew 31% in the quarter. The company had raised the prices by 7% after two years, it said.
At a time when most fast-moving consumer goods companies are alluding to a slowdown in urban consumption, Tata Consumer said it is seeing a different picture. "If you do not count modern trade and e-commerce and only count general trade, urban growth is low single digit," the management said. "Rural growth is close to double digits. If I add back modern trade, which is primarily urban, and e-commerce, including quick commerce, which is primarily urban, then my urban growth also is close to double digits," it said.
Tata Sampann, the brand under which the company retails spices, pulses, and dry fruits, reported growth of 12% in the quarter. The portfolio may achieve a profitability of 12-15% going forward, the company said.
As trade pricing interventions in the ready-to-drink business have revived volume growth, it is just a matter of time before the revenue growth picks up again, the company said. During the December quarter, the ready-to-drink segment, which hosts brands such as Tata Gluco+, Tata Copper+, and Tata Coffee, reported volume growth of 14%, but revenue for the quarter fell 2% owing to recalibration of trade pricing, the company said. The premium ready-to-drink sub-segment grew 12% in the quarter and contributed to 15% of the total ready-to-drink business.
The combined sales of the Capital Foods and Organic India businesses crossed INR 8.50 billion in the nine months to December. The businesses will continue to build momentum and accelerate from here on, the company said. Tata Consumer Products had acquired Capital Foods and Organic India in January 2024.
The company's consolidated net profit for the December quarter remained unchanged from a year ago as the growth in revenue failed to outpace the rise in expenditure. The company reported a consolidated net profit of INR 2.79 billion for the quarter. Its consolidated revenue rose 17% on year to INR 44.44 billion. As of Dec. 31, the company had net cash of INR 8.8 billion.
On Thursday, shares of the company closed at INR 966.70 on the National Stock Exchange, up 0.7%. The company detailed its earnings for the December quarter after market hours. End
Edited by Rajeev Pai
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