TATACONSUM - TATA CONSUMER PRODUCTS LIMITED Share Price

Management provided an optimistic outlook in the Q2 FY '26 earnings conference call for Tata Consumer Products Limited. Key highlights include an overall revenue growth of 18%, with the India branded business witnessing a 14% increase in volume growth. The core India business achieved double-digit growth, particularly in tea and salt, marking the second consecutive quarter of such performance. The growth businesses, which comprise 30% of the portfolio, achieved a 27% increase, demonstrating strong momentum.

Significant numbers include a consolidated revenue of close to INR 5,000 crores for the quarter, with an EBITDA margin of 13.6%, representing a sequential expansion of 70 basis points. Core categories such as India Beverages and Foods grew at 15% and 19%, respectively. The ready-to-drink (RTD) category rebounded with volumes up by 31% and values by 25%. Cash reserves stood at approximately INR 1,000 crores, and the company achieved a net profit margin of 8.2%, amounting to INR 400 crores.

Key forward-looking points from management include:

1. Recovery of standard tea price margins, suggesting a stabilization within the 34%-36% range.
2. Expectations of continued growth in the RTD category, which is anticipated to achieve a 30% growth aligned with overall volume increases.
3. Continued product innovation with 25 new SKUs launched within the quarter, with a robust pipeline driving distribution and market penetration.
4. A strong emphasis on responsible business practices, with improvements in sustainability measures and a commitment to maintaining market share amidst a competitive landscape.

Overall, the management expressed confidence in sustaining growth momentum and enhancing margins while navigating pricing challenges in commodity inputs like coffee.

Q&A Summary from the Earnings Transcript

Question 1: "On tea, you've grown well in double digits over the past 4 quarters. Should we expect further price cuts to continue or all the price cuts are behind now?"

Answer: I would expect us to operate in the 34% to 36% gross margin range for tea. While we have initiated some price cuts due to softening tea prices, we aim to achieve mid- to high single-digit top-line growth in the future as volumes rise. The relationship between pricing and volume will fluctuate, but we anticipate primarily volume-driven growth moving forward.

Question 2: "In the unbranded business, I would urge not to look at the top line. Are these sustainable? What level of growth should one expect in these businesses?"

Answer: In the unbranded segment, I suggest focusing on margins rather than absolute numbers. Although we achieved a 26% year-on-year revenue growth, margins settled in the low teens, which is where they are expected to be. Coffee prices are volatile, impacting margins, and while we saw some softness recently, maintaining a keen eye on margins is essential.

Question 3: "The GST disruption, what would have been the normal growth without it?"

Answer: Before the disruption, we were tracking a solid high double-digit growth rate. However, the resultant impacts of GST adjustments in both general and modern trade affected our performance. We are recovering and seeing normal sales growth returning, particularly in RTD beverages, which tend to be less affected by such disruptions.

Question 4: "About e-commerce and quick commerce, how does competition compare with other large players?"

Answer: We remain market leaders in e-commerce and quick commerce, even though Nielsen does not capture all of our data due to various factors. Our strategy focuses on maintaining competitive margins while ensuring that our pricing remains attractive, especially as we manage distribution deeper into the market.

Question 5: "Regarding international sales, do you think the second quarter of FY '26 marks the trough?"

Answer: I would assess that we are about a quarter away from normalcy in our international margins. While tea prices have begun to soften, there are many moving parts, including tariffs and commodity pricing which can significantly impact margins, making predictions complex right now.

Question 6: "In the RTD beverage business, do you expect growth to fundamentally improve due to the GST reduction?"

Answer: The GST cut does enhance affordability, especially compared to carbonated drinks. However, given that RTD beverages are inherently impulse-driven, we haven't observed significant inventory adjustments affecting growth. Our focus remains on maintaining strong value propositions to drive growth in this segment.

Question 7: "Can you share insights on market share retention amid rising competitive intensity?"

Answer: Our priority is maintaining market share; we will adjust margins as needed to remain competitive. The overall category performance indicates our ability to retain relevance, underscored by our deals with distributors ensuring they offer our full portfolio.

Question 8: "How will rising distributor discontent affect inventory and supply chain?"

Answer: We've implemented a system to monitor distributor inventories closely. While there are operational challenges, overall, stock levels have reduced rather than increased, and we are working continuously to ensure that our distribution model adapts to market conditions without causing disruptions.

Question 9: "What are your expectations on margins moving into the next quarters?"

Answer: I firmly believe we will see a year-on-year expansion of margins as we progress into the next quarter, with an aim of reaching about a 15% EBITDA margin by Q4. The pressures observed in the U.S. coffee business are the only potential outliers affecting this goal.

This summarization presents a concise view of the key questions and responses during the earnings call, providing clarity on future performance expectations and business strategies.