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Informist, Wednesday, Jul. 23, 2025

By Avishek Rakshit & J. Navya Sruthi

KOLKATA/MUMBAI – Optimistic about the cost of procuring tea moderating in the coming months, Tata Consumer Products Ltd. is hopeful that its gross margin from the Indian tea business will return to its usual level of 34-37% by the December quarter of the financial year 2025-26 (Apr-Mar).

"We have had about 10 percentage-point impact of tea costs," Tata Consumer Products Managing Director and Chief Executive Officer Sunil D'Souza told sector analysts Wednesday after the company announced its financial results for the June quarter. "We have been able to translate roughly 70% of the price (procurement cost) increases of tea into pricing for the consumer. So, 30% is still out there and that has impacted our margins by about 10 percentage points."

Although Tata Consumer does not declare its revenue and profit from the tea business separately, the branded commodity accounts for a major portion of its beverages business in India, which in turn accounts for 34% of its consolidated annual sales in India, making it one of the most important revenue verticals for the company, along with the salt business. Outside India, tea and coffee sales in the UK, Canada, and the US account for 22% of the company's consolidated top line. Tata Consumer is the country's second-largest tea retailer by volume as well as value after Hindustan Unilever Ltd., and is the largest salt seller in India.

"Broadly, tea should operate in a range of about 34, 36, 37% gross margin," D'Souza said. "I would say by Q3 (Oct-Dec), you should see margins operating in this range."

After a downswing in the final quarter of FY24, when average tea prices at auctions hit rock bottom at INR 133 a kg, the commodity's prices have been moving up. From the start of FY25 till the June quarter of FY26, auction prices have shot up over 66%, exerting pressure on the company's margins.

Average tea auction prices rose 45% on quarter to INR 221 a kg during the June quarter, but this was mostly on account of seasonality and is seen as usual in the tea industry as the prime produce from Assam and West Bengal starts coming to the auctions only after June.

While Tata Consumer did resort to price increases to cover the rise in tea procurement costs, even at the risk of losing market share, it did not pass on the increased procurement cost entirely to consumers. During Apr-Jun, revenue from tea sales in India increased 12%, but sales volume increased only 1%. The company lost market share by 80 basis points.

D'Souza said that as tea procurement costs start moderating, something that will benefit Tata Consumer as well as its prime competitor Hindustan Unilever, changes in retailing prices are not likely to help either to increase their market share. "We have seen price increases and price declines," he said. "Like I said, I do not think we are going to win or I don't think any player is going to win the battle of market share by pricing... if someone moves up, the other person moves up, or down and it's vice-versa. From that perspective, I don't think there is a competitive advantage."

D'Souza said that in the coming months, the company expects mid-single-digit growth in tea volumes backed by a value growth of 6-8%. "As prices stabilise, and more importantly, as tea costs go down and they are reindexing, you should start seeing volumes pick up towards the mid single digit," he said. "I would not change my guidance of overall, I would say between 6% to 7%, 8% total value growth."

STRENGTHENING FOODS

Tata Consumer is also working to strengthen its foods portfolio, majorly comprising the Sampann brand, and rolling out value-added commodities like nuts to increase its margins at the consolidated level.

D'Souza said the company's overall business, including the NourishCo brand of beverages, will see growth of 30% in the next three quarters. All the new product launches by the company have got off to good starts, he said, adding that the company is likely to see more than 30% growth in its top line in the second half of Jul-Sept.

During the June quarter there were transitory issues regarding Capital Foods, the company that Tata Consumer had acquired in January 2024. For example, the company did not have an INR 10 or INR 15 noodle pack and was selling a four-cake noodles pack at INR 80, against the competitor's price of INR 60. Aiming at price parity in an attempt to gain market share, Tata Consumer reduced the price of its four-cake noodle pack to INR 60. The company also entered the lucrative INR 10 and INR 15 pack categories which are key volume drivers in the consumer goods segment. It launched a 60 gram pack worth INR 15 and another pack at INR 10.

D'Souza said Tata Consumer was facing supply issues in noodles and Chinese cuisine food products, which was the primary reason for not scaling up this business portfolio quickly, which affected the sales growth of the Ching's Secret brand in its foods portfolio. Currently, it is piloting cup noodles in select geographies and getting the product right for consumers, he said. The managing director said that in July itself, growth in the Ching's Secret and Organic India portfolios is stabilising and should pick up in the coming months.

US TARIFF IMPACT

Asked about the effects of tariffs that may be imposed by the Donald Trump administration in the US, D'Souza said, "I will wait for it to happen and then figure out. We have got a playbook of different options.... We will action it as and when we see something landing."

A major portion of Tata Consumer's sales in the US comes from coffee, which is imported from Latin American countries, including Brazil. Hence, Trump's decision to impose 50% tariff on Brazilian products is a cause of worry for the company and others operating in this segment.

Pointing out that tariffs, if imposed on Brazil, will not pose a competitive challenge for Tata Consumer, D'Souza said, "There might be category issues in the US if, for example, Brazilian coffee is taxed at 50%. I mean, there is going to be a ruckus there, right? Competitively, I won't be impacted."

Strong growth in the company's core categories of tea and salt, supported by underlying volume gains in its Indian operations and narrowing losses from its plantations business, helped Tata Consumer Products to report 15.1% growth on year in consolidated net profit for the June quarter at INR 3.3 billion. The net profit narrowly missed the Street's expectation of INR 3.4 billion.

Growth of 12% on year in revenue from the packaged beverages business in India, together with 14% on-year top-line growth in its domestic foods business and 5% growth in revenue from international operations in constant currency terms led Tata Consumer to report 9.8% growth in its consolidated top line for the June quarter at INR 47.8 billion. The revenue also missed the Street's projection, which was INR 48.4 billion. Owing to the shorter summer season and the early onset of the monsoon this year, the ready-to-drink beverages category took a beating and reported a moderate volume growth of only 3% during the quarter under review.

Shares of Tata Consumer closed over 2% lower at INR 1,062.60 on the National Stock Exchange Wednesday. The company detailed its financial results after market hours.  End

Edited by Rajeev Pai

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