- 03 Feb 2022
- ICICIdirect Research
Cool-off in tea prices lead to margin recovery for TCPLTATACONSUM - 791 Change: -3.25 (-0.41 %)
News:Tata Consumer Products' results were in line with our estimates on revenue, operating profit & earnings front. Revenue witnessed growth of 4.5% to Rs.3208.4 crore led by 16% growth in India foods business and 34% growth in Tata coffee. India beverage business witnessed sales growth of 1% aided by 6% volume growth. This 6% volume growth was on a high base of 10% volume growth in Q3FY21. India foods business growth of 16% was led by 12% price hikes & 4% volume growth. Tata coffee growth was contributed by 31% volume growth & 4% realisation growth. With significant reduction in tea procurement price, gross margins inched up 590 bps. The company increased its advertisement spends by 81 bps. Further employee & overhead spends also increased by 21 bps & 247 bps with normalised expenses from the low spend quarter in base. Operating profit grew by 27.8% to Rs.461.7 crore aided by high gross margins. Operating margins expanded by 262bps 14.4%. Net profit witnessed a growth of 22.2% to Rs.290.1 crore.
Views: Tata Consumer Product is one of the few FMCG companies witnessing volume growth during the quarter aided by India tea & India foods business. The major raw material for the company is Tea (India), which has declined significantly in last six months. The softness in tea prices have led to 11% points uptick in India beverage business EBIT largely by retaining increased prices. Further, the company was also able to grow volumes in India foods business through stronger growth in ‘Sammpan’ Brand & new launches in Salt business. One of the notable point for the quarter is ‘closer to break-even’ in Starbucks business. We believe strong growth in smaller categories (Sammpan), Premiumisation in salt & tea & profitability of Starbucks would be few major factors for driving revenues & operating margins going forward. We remain positive on the stock on a longer term perspective.