Tata consumer Q2 net profit up despite higher costs, weak tea demand

Mumbai: Weak tea demand and rising commodity costs are putting pressure on Tata Consumer Products' core business, prompting the company to lean on salt and newer businesses to sustain growth.

Tea volumes remained flat in the September quarter, while unusually hot weather hurt its UK business, even as the consumer goods maker reported double-digit growth in revenue and profit. India tea and coffee revenue declined 1% year-on-year to ₹1,244 crore, with flat volumes amid weak category demand. This decline comes in the midst of broader tepid industry performance, with about 6% drop in overall volumes.

"The overall industry has been soft," chief executive Sunil D'Souza told investors on Monday. "If I look at overall third-party numbers, it's about negative six." The company raised tea prices by 8-10% between the June quarter and now to offset input cost inflation. According to D'Souza, the increases had covered the inflation so far, but their full impact is yet to reflect in financials. He flagged the buying cycle after the festive season as a factor to watch. Tata Consumer's margin ambitions remain vulnerable to volatility in commodity and operating costs, including oil, packaging, freight and fuel, said D'Souza.


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"If oil was not at $115 and there was no huge swings on the entire packaging, freight, fuel, all these kind of pieces, I think we would be in a position to deliver," D'Souza said, referring to the company's target of achieving an Ebitda margin of 17-20% in its Indian food and beverage business.
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He said the company expected to reach that range in about three years, while acknowledging that the path would involve setbacks.

Commodity inflation weighed on its India business this quarter where margins narrowed to 11.1% from 11.5% a year earlier, despite revenue rising 17% to ₹3,666 crore. Chief financial officer Ashish Goenka attributed this contraction largely to inflation in salt, adding calibrated price increases had already been taken.

Salt, meanwhile, is closing the gap with tea and coffee. Revenue from this business rose 15% to ₹1,099 crore, supported by 9% volume growth, while value-added and premium salt volumes grew 17%. The company also raised prices of its standard orange salt pack from ₹30 to ₹32 in May, and to ₹34 on October 1.

International revenue rose 7% to ₹1,256 crore but fell 2% in constant currency against a high base. In the UK, revenue fell 8% in constant currency as a prolonged heatwave hurt tea consumption. Consolidated revenue from operations rose 14% to ₹5,661 crore in quarter, while the net profit grew 16% to ₹470 crore. Ebitda grew 18% to ₹794 crore in the period.