TATACONSUM - TATA CONSUMER PRODUCTS LIMITED Share Price

Management's outlook for Tata Consumer Products Limited highlights a solid foundation for growth, despite facing some challenges in the recent quarter. Key points shared by management include:

1. Growth Achievements: The company reported a consolidated revenue growth of 10%, reaching INR 4,779 crores. The net profit increased by 15%, resulting in a 12% year-on-year EPS growth.

2. Sector Performance: The India branded business demonstrated double-digit growth of 10%, with important segments like India Foods up by 14% and International business showing a 5% growth in constant currency. However, growth in the company's emerging segments, particularly in ready-to-drink (RTD) beverages, was impacted by unfavorable weather conditions.

3. Sampann Performance: The Sampann brand maintained a strong growth momentum at 27%, with the recent launches in dry fruits and cold-pressed oil supporting this trend.

4. Challenges: The decline in EBITDA of 8% was mainly attributed to an increase in tea costs and price corrections in the non-branded segment affected by falling coffee prices. The overall EBITDA margin decreased by 250 bps.

5. Cost Management and Strategic Focus: Management emphasized that strategic priorities remain unchanged, maintaining A&P-to-sales ratios in the 7% range, with aspirations to increase it to 7.5%-8%. They also intend to boost innovations and expand distribution channels across various product segments.

6. Future Expectations: The outlook for tea prices suggests reduction due to current auction trends, with expectations that margins will normalize between 34% to 37%. Management expressed confidence in achieving top-line growth of over 30% in the NourishCo segment and indicates that normalization across Capital Foods and Organic India is anticipated by Q2.

These insights reflect a cautious optimism, focusing on growth and collaboration while navigating current market dynamics.

Question 1: "Could you please explain the commodity price trends over the past 6 months and the outlook for the year? Are you still confident that tea margins could normalize to 200-300 basis points improvement?"

Answer 1: Yes, tea prices have shown about a 10% impact over the last 6 months, with around 70% of price increases passed to consumers. As prices stabilize, we expect tea margins to recover, increasing by 200-300 basis points by Q3, particularly as recent auction prices indicate a 13% drop from last year's levels.

Question 2: "Non-branded business margins have corrected from 22% to 12%. How do you view this inventory loss?"

Answer 2: Falling coffee prices do affect trailing inventory, leading to some margin compression. However, I believe we are nearing the bottom. We're well-hedged and anticipate one more quarter of challenge before regaining historical margin levels.

Question 3: "How relevant are current spot prices considering the Northeast's rainfall deficit?"

Answer 3: Current prices are crucial as buying has already begun. Although Northeast rainfall hasn't been ideal, we are ahead of last year's crop levels. If the monsoon meets forecasts, we expect to return to 2023 cropping levels, aiding price corrections.

Question 4: "On NourishCo, how do you see sales after the 16% price cut?"

Answer 4: We took significant price corrections to drive volume. Although we experienced a 3% volume rise and a 13% revenue drop due to price adjustments, I believe Q2 will see growth exceeding 30% as volumes now translate into value growth, post-correction.

Question 5: "What challenges exists in Capital Foods since the acquisition?"

Answer 5: We faced transitory issues like shipping and supply chain challenges post-acquisition. However, we've figured out capacity constraints, and the groundwork is now laid for future growth. I remain confident we'll achieve targeted growth levels moving forward.

Question 6: "How do you view competition and pricing strategies in the tea market?"

Answer 6: Competition has varied; both price hikes and cuts have been observed. I don't anticipate major market share changes purely based on pricing strategies. Our priority remains to stabilize prices, ensuring we maintain profitability while staying competitive.

Question 7: "What are your expectations for EBITDA and margin recovery moving forward?"

Answer 7: I believe we can reach closer to 16% EBITDA margin by Q3. Q2 will serve as a transition period with improving margins as lower-cost tea inventory enters. Further price corrections and improved cost management should support this recovery.

Question 8: "Can you discuss the distribution expansion for Capital Foods and Organic India?"

Answer 8: Distribution for both brands has grown significantly since acquisition. Secondary sales for Capital Foods have increased by 22%, while Organic India achieved 32% growth. The focus is now on resolving minor operational hiccups rather than distribution issues.

These summaries capture the essence of the major Q&A exchanges while adhering to the requested character limits.