TATACONSUM - TATA CONSUMER PRODUCTS LIMITED Share Price

The management of Tata Consumer Products provided a cautiously optimistic outlook, highlighting strong revenue growth across key segments despite margin pressures. Consolidated revenue grew 17% (9% organic), driven by India Beverages (16%), India Foods (31% including acquisitions), and International markets (8%). Volume growth in tea (7%) and resilience in salt (1% volume growth post-price hike) underscored market share gains, with salt adding 110 bps. Sampann grew 23%, and the RTD business rebounded with 39% December volume growth after pricing adjustments.

Margin pressures in India Tea (25"“30% input cost inflation) are expected to peak in Q3, easing by Q1/Q2 FY26 if tea prices stabilize or new crops normalize. Management emphasized calibrated pricing (offsetting ~40% of tea cost hikes) and operational efficiency to protect competitiveness. Foods, International, and non-branded businesses delivered robust margins, with EBITDA potentially expanding 75"“100 bps if tea costs normalize.

Strategic priorities include accelerating core businesses (tea, salt), scaling newer segments (Sampann, Capital Foods, Organic India), and expanding distribution (10% more distributors, 30% more DSRs). Innovations (premium tea variants, quick-cook products) and channel diversification (food service, pharma, e-commerce) are key. Starbucks improved sequentially, with store expansion to 473 outlets. International markets (U.K., U.S., Canada) showed strength despite coffee price volatility.

Management targets mid-single-digit beverage volume growth long-term, with focus on execution, cost control, and leveraging digital tools. Risks include volatile commodity prices, but confidence in pricing agility and portfolio diversification remains high. Cash reserves (INR 880 crore) support growth initiatives, with a focus on sustainable margin recovery.

Question 1:
"My first question actually was on tea margins. If you could just help us understand over the next 2, 3 quarters until the next crop comes in, what do you expect tea margins to do in terms of year-on-year impact? And do you think the industry will take sequential pricing? Or do you wait for the next crop where if it doesn't, as you rightly said, if it doesn't come off their pricing would happen then?"
Answer Summary:
Tea margin pressure peaked in Q3, with gradual easing expected in subsequent quarters. Input costs remain elevated until new crops arrive (likely Q1/Q2 FY26). Industry pricing actions depend on cost trends. Tata Consumer will remain competitive, prioritizing volume/value growth. If tea costs stay high, industry-wide price hikes may occur.

Question 2:
"My second question was on the RTD business. You've seen a good improvement here with the changes or the actions you've taken. Wanted to understand, is the competitive environment here stable? Are you seeing further intensity from some of the new entrants? And do you think what you've done is sufficient to get you back to revenue growth, let's say, a few quarters down the line as you see it?"
Answer Summary:
RTD competitiveness improved via pricing adjustments (e.g., matching retailer margins). December 2024 exit volume grew 39%, though revenue dipped due to margin rebalancing. Unit economics favor Tata's INR 10 pricing strategy. Revenue growth is anticipated as volumes scale, with no long-term viability concerns for competitors' aggressive pricing.

Question 3:
"And my last question was just on the international and the non-branded business. While year-on-year margins are up a lot, it's slightly tapered off sequentially. Do you expect at least the non-branded business to now start moderating? Or do you expect in the near term margins to remain healthy in both of these?"
Answer Summary:
Non-branded margins depend on volatile coffee prices (50-year highs). Demand destruction could trigger price corrections. International margins improved structurally in the U.K. and Canada. Near-term margins may stabilize, but coffee price uncertainty dominates outlooks.

Question 4:
"So now why would you rule out one more price hike because we are talking about Q4 being soft, it may improve versus Q3. Q1 also being soft and Q2 almost also getting impacted, so it's almost 3 quarters. So is it fair to rule out one more round of price hike given it's largely a 2-player market?"
Answer Summary:
Pricing will remain competitive; incremental hikes depend on industry alignment. Local players adjusted gradually to cost increases, limiting immediate share shifts. Tata will lead pricing where feasible but avoid gaps competitors could exploit. Market share gains are expected as smaller players face margin pressure.

Question 5:
"My second question is on Sampann and salt. So salt, low single-digit volume growth, and Sampann, Q3 growth is lower than the H1 growth. Now both are big premium players definitely versus rival, and urban slowdown, is there Sampann clearly the urban business. So given the urban slowdown, how do you see volume growth in salt where you are a premium player and Sampann where clearly you are urban player?"
Answer Summary:
Salt volumes grew despite a 7% price hike (historically rare), aided by execution. Sampann faced commodity-driven pricing but maintained strong YTD growth (28%). Urban slowdown concerns are overstated: rural growth offset softer GT performance, with modern trade/e-commerce driving urban numbers.

Question 6:
"Last quick question on Organic India and Capital Foods. The first is what has not worked till now [...] and given urban slowdown and on the other side, pharma expansion, pharma outlet expansion, FY '26, how does it look?"
Answer Summary:
Capital Foods/OI faced execution gaps post-acquisition (team transitions, frozen/exports learning curve). Distribution now stabilized, with pilots in food services (16 cities) and pharma (40 cities) scaling in FY26. Innovation (e.g., Schezwan variants) and channel expansion (pharma for OI) to accelerate growth.

Question 7:
"So would it be fair to say that the margins for that business, the Gluco Plus business aren't impacted? Or would there be an impact where you've taken down margins as well, but you're okay with the new level of profitability?"
Answer Summary:
RTD margin pressure exists (pricing adjustments), but Tata prioritizes long-term scale. Gluco Plus (2.5% of revenue) is strategically critical; near-term margin trade-offs are offset by volume gains. Profitability will improve as scale compensates for margin dilution.

Question 8:
"On tea, kind of volume growth, I don't remember when are we seeing this kind of volume growth. Clearly, I don't -- do you think that these are the sustainable volume growth for the near term at least?"
Answer Summary:
7% tea volume growth reflects execution (distribution expansion, SFA tools) and A&P focus. Mid-single-digit growth remains the long-term target. Sustainability hinges on maintaining competitive pricing and mix normalization as premium segments rebound.

Question 9:
"On food margins, would it be incorrect to assume food margins has seen a material expansion, and what would be the key reason for the same?"
Answer Summary:
Food margin improvement stems from mix (Capital Foods' higher margins) and salt pricing. Sampann faced temporary cost pressures. Growth in premium/value-added products (dry fruits, cold-pressed oils) and Capital Foods' integration drive structural margin upside.

Question 10:
"The second question is, has sales and distribution now geared up and is the demand environment conducive for 25% growth in Capital Foods and Organic India?"
Answer Summary:
Distribution gaps addressed; food services/pharma channels scaling. Capital Foods/OI's small base and innovation (e.g., quick-cook pulses, health-focused variants) support growth irrespective of macro trends. Targeting 25%+ growth via channel expansion and sampling (e.g., Kurkure partnership).