Tata Consumer Q3 Results: Profit Beats Estimates But Inflation Eats Into Margin

Tata Consumer Products Ltd.'s third-quarter profit rose, beating estimates, but persistent inflationary pressures and currency weakness hurt margins.

Net profit attributable to the maker of Tata Tea and Tata Salt rose 33% over the preceding year to Rs 351.8 crore in the quarter ended December, according to its exchange filing. That compares with the Rs 281.9 crore consensus estimate of analysts tracked by Bloomberg.

Sequentially, its net profit rose 7% from Rs 327.96 crore.

Profit before exceptional items and tax at Rs 403.75 crore is 1% higher, as compared to the corresponding quarter of the previous year. This reflects strong growth in the domestic business was partly offset by lower profits in the international business, due to inflationary pressures and weakness in the currency.

Key Highlights (YoY)

• Revenue rose 8% to Rs 3,474.55 crore, compared with the estimated Rs 3,471.32 crore.

• Operating profit fell 2% to Rs 453.66 crore, against the Rs 458.02-crore forecast.

• Margin contracted to 13.1% from 14.4%.

• India business grew 8% to Rs 2,165.34 crore.

• International business revenue was up 4% to Rs 929.9 crore.

• Non-branded business increased 25.3%.

• Advertising spend was lower at 6.9% year-on-year.

"We delivered strong earnings growth this quarter while balancing revenue growth and margins in an extremely challenging macroeconomic environment," said Sunil D’Souza, managing director and chief executive officer at Tata Consumer Products.

India Business

• For the quarter, the packaged beverages business recorded 9% revenue decline led by pricing corrections and demand slowdown and late onset of winter in key markets of North and East.

• However, the company said it's seeing demand recovery now.

• Coffee segment continued its strong performance with a revenue growth of 34% year-to-date.

• In line with its premiumization agenda, Tata Tea Gold Care, Chakra Gold Care, and Tata Tea Gold Darjeeling continued to see strong traction.

• Domestic food business registered 29% revenue growth and 4% volume growth.

• The salt portfolio recorded double-digit revenue growth during the quarter and continued to gain market share.

• Continued stress in rural and delayed winter in key markets led to market share softness in tea.

• NourishCo sustained strong momentum during the quarter, with 66% revenue growth led by broad-based performance across products and geographies.

• Channel-wise, the modern trade channel grew 17%, contributing to 14.8% of domestic business sales. The e-commerce channel grew 34%, contributing to 8.2% of sales. About 11% of e-commerce revenue came from new product development during the quarter.

While the branded tea business in India has been impacted by demand headwinds in some key markets, D'souza said the company is putting in place measures to address some of these challenges.

"In our other core business of salt, we have continued to gain market share despite pricing actions taken to mitigate input cost inflation. We continued to maintain momentum on innovation with a number of new launches across our beverages and food categories," he said.

During the quarter, the company said its Tata Sampann, Tata Soulfull and NourishCo portfolio have continued their strong growth trajectory to collectively account for 13% of the domestic business now.

Tata Starbucks, the joint venture with Starbucks Corp., recorded 42% revenue growth led by a revival in out-of-home consumption and store additions. It opened 11 stores during the festive quarter and entered two new cities. This brought the total number of stores to 311 across 38 cities.

Shares of Tata Consumer closed 0.46% lower on Thursday compared with a flat benchmark Nifty 50 index.