Q3FY23 Review: Tata Consumer: India Tea drags

6 Feb 2023 , 12:06 PM

Tata Consumer Products (TCPL) delivered a top-line growth of 8%YoY, driven by better performance in India Foods business. Continued stress in rural, as also delayed winter, led to 5% volume decline in Tea business. Inflationary pressures, currency depreciation and lag in pricing in the international business resulted in 133bps impact on margins. TCPL reported a sales growth of 8.3% (in-line) and Ebitda decline of 1.7% (1.5% below estimate). India Tea business recorded 5% volume decline and lost market share by 46bps. India Foods grew 29%YoY (4% volume growth), largely driven by pricing actions taken in Salt. Ebitda margin declined 133bps YoY to 13.1%, due to inflationary pressures, currency weakening and lag in pricing in international business. New engines of growth (Sampann, Soulfull, NourishCo and SmartFoodz) have grown 53%YoY, and contribute ~13% of India branded sales.

With gradual recovery in rural since mid-Dec’22, mgmt has planned to expand its distribution network in sub-urban and rural regions — taking its total reach to 4mn outlets by end-FY23 (3.6mn currently). This would help them gain volumes and market share in Tea. As the sharp price hikes of up to ~33% taken in salt anniversarises in coming quarters, sales growth would reduce in India Food business. India tea volumes need to pick up to continue with the growth trajectory in domestic business. 

Analysts of IIFL Capital Services downgrade their EPS estimates for FY23 and FY24 by 4% and FY25 by 3%, to factor in the slowdown in the India Beverages business and impact of currency weakness on margins. With further pricing taken in international business in Q3 to mitigate input cost inflation, analysts of IIFL Capital Services expect margins to improve sharply from FY24 onwards. They forecast revenue/Ebitda/PAT Cagr of 10.9%/17.9%/20.5% over FY23-25.

Analysts of IIFL Capital Services maintain ADD with a target price of 760.