Tata Consumer Q2 Results: Profit Up 22%, Volatile Currency Hurts Margin

Tata Consumer Products Ltd.'s quarterly consolidated profit rose, beating estimates, even as expenses jumped.

Net profit attributable to the shareholders of Tata Tea and Tata Salt maker rose 22% year-on-year to Rs 327.9 crore in the July-September period, according to an exchange filing. That compares with the Rs 276.2 crore consensus estimate of analysts tracked by Bloomberg.

During the quarter, the company accrued a net one-time gain of Rs 111 crore on the back of profit made from the sale of land parcel.

Q2 Highlights (YoY)

• Revenue rose 11% to Rs 3,363.1 crore, compared with the estimated Rs 3,322.2 crore.

• Operating profit rose 5% to Rs 433.8 crore, against the Rs 425.7-crore forecast. This is attributed to the impact of inflationary pressures, weakness in currency and some lag in pricing in the international business.

• Margin contracted to 12.9% from 13.6%, dragged by higher expenses. Analysts had pegged the metric at 12.8%.

• Expenses rose 12% to Rs 3,021.9 crore.

• Other operating expenses rose 15% to Rs 479.3 crore

• Cost of materials consumed rose 7.73% to Rs 1,327.3 crore.

• Advertising and promotional expenses in the quarter rose 2.36% to Rs 217 crore.

• Revenue from India business increased 9.19% to Rs 2,159.9 crore.

• International business saw revenue rise 7.37% to Rs 838.8 crore.

• Revenue from non-branded business jumped 32.8% to Rs 371.8 crore.

“We delivered another quarter of double-digit revenue growth while balancing margins despite inflationary pressures, weakness of currency and some lag in pricing in international markets," Sunil D’Souza, managing director and chief executive officer of Tata Consumer, said in a statement.

The branded tea category in India was tepid, we the company continued to gain volume market share, he said. "In other core business of salt, despite significant inflation-led pricing, we have continued to gain market share."

The company has also accelerated the pace of innovation this year with the number of new launches being twice as much as the same period last year.

"While unprecedented inflation and adverse currency movements in the international business have weighed on margin this quarter, we will be driving structural cost savings initiatives to improve the trajectory going forward," said D’Souza. The company's transformation agenda to become a leading FMCG company also continues to be on track. "We are making consistent progress in expanding our reach across channels, strengthening our innovation capabilities, and embedding digital transformation across the organization."

India Business

• The packaged beverages business recorded 7% revenue decline due to pricing corrections and overall softness in the category.

• The company continued to record volume market share gains in branded tea. The premium tea portfolio continued to grow faster than the base portfolio.

• Coffee business saw revenue growth of 39% during the quarter.

• For the quarter, the foods business posted 29% revenue growth despite an elevated base that saw 23% growth in the same period last year.

• The salt portfolio recorded double-digit revenue growth during the quarter despite a high base in Q2 last year and continued to record market share gains.

• The Tata Sampann portfolio recorded strong double-digit growth led by broad based performance across pulses, poha and spices.

• Tata Sampann Dry Fruits is scaling up well with strong growth and share gains across e-commerce platforms.

• Tata Soulfull delivered strong growth during the quarter.

• NourishCo sustained strong growth momentum during the quarter with a 63% revenue growth led by growth across products and geographies. 'Himalayan' recorded excellent growth and continued to remain EBIT positive during the quarter.

• Direct reach expanded to 1.4 million outlets and the number of super stockists has grown by 20%.

• The e-commerce channel grew 40% contributing to 9.2% of India business sales and modern trade channel grew 18% year-on-year.

In the international business, the company replaced Twinnings to become the third largest branded tea company by market share, the company said.

Tata Starbucks, the joint venture with Starbucks Corp, recorded a revenue growth of 57% for the quarter, led by normalised store operations and a revival in out-of-home consumption. It opened 25 stores during Q2, the highest ever number of quarterly store openings in its history and entered five new cities, taking the total store count to 300 across 36 cities.

Shares of the company closed 0.77% higher on Thursday before the results were announced against a flat benchmark Nifty 50.