Tata Consumer Products: Focusing on performance of growth businesses key

Tata Consumer reported Q4 results which were more or less in line with analyst consensus but disappointed the market. The company is going through a process of reorganisation after the amalgamation of Tata Coffee and the acquisition of Organic India and Capital Foods.

The Q4FY24 revenue was Rs 3,930 crore, up 8.5 per cent year-on-year (Y-o-Y) in Q4FY24, while the operating profit margin improved 190 basis points Y-o-Y to 16 per cent, driven by a better gross margin (up 430 basis points) of 46.1 per cent vs 41.8 per cent Y-o-Y. The operating profit rose 23 per cent Y-o-Y to Rs 630 crore.

The Indian branded business grew 10 per cent Y-o-Y to Rs 2,480 crore, led by revenue growth of 3 per cent Y-o-Y in the Indian branded beverage and 20 per cent Y-o-Y in the Indian food segment to Rs 1,320 crore and Rs 1,160 crore, respectively. The segment profit increased 3 per cent Y-o-Y to Rs 320 crore during the quarter.

The international branded beverage revenue grew 7 per cent Y-o-Y to Rs 1,050 crore with segment profit growth of 29 per cent Y-o-Y to Rs 160 crore. The adjusted net profit stood at Rs 380 crore, up 38 per cent Y-o-Y in Q4FY24. In FY24, the revenue, the operating profit and adjusted net profit grew 10 per cent, 23 per cent and 29 per cent, respectively to Rs 15,200 crore, Rs 2,280 crore and Rs 1,400 crore.

The standalone revenue grew 13 per cent Y-o-Y in Q4FY24 to Rs 2,610 crore, while operating profit rose 8 per cent Y-o-Y to Rs 400 crore in Q4FY24. For the full year FY24, standalone revenue, operating profit and adjusted net profit grew 11 per cent, 15 per cent and 10 per cent respectively to Rs 10,000 crore, Rs 1,600 crore and Rs 1,140 crore. The numbers have been restated to reflect the Tata Coffee merger from Q4FY24. In Tata Coffee, management says it has just started realising synergies.

In Q4FY24, the US coffee revenue grew 3 per cent Y-o-Y to Rs 390 crore while the international tea revenue was up 9 per cent Y-o-Y to Rs 670 crore. For the full year FY24, the US coffee revenue declined 2 per cent Y-o-Y to Rs 1,460 crore, while International tea revenue rose 17 per cent Y-o-Y to Rs 2,470 crore.

After the acquisition of Capital Foods and Organic India, Tata Consumer needs to derive synergies, expand distribution, and increase throughput per store.

Commentary indicates integration, reorganisation of the distributor network, and inventory management are all works in progress. By FY25, Capital Foods and Organic India should be cash-accretive and EPS-accretive by FY26. Amortisation of Capital Food and Organic India may lead to margin pressures.

Starbucks which has 421 current outlets hopes to reach 1,000 outlets by FY28 and that seems a reasonable target. There was a slowdown in NourishCo (the beverages segment) growth rates in Q4, but management is confident of picking up the pace.

The India salt segment’s market share expanded by 50 basis points, to 39.9 per cent between Feb-Mar’24. But India tea has lost 50 basis points market share and remained flat Q-o-Q. Management expects the India tea business to deliver volume growth of 5 per cent in the long term and claimed Q4 was “soft”.

The company has focussed on distribution, especially in small (50,000 population-plus) towns. It has added roughly 1,300 distributors in the last year in urban markets. Tata Consumer has invested in new products with 100 launches in the past five years and introduced one new product every week in FY24. The revenue contribution of new products (launched in the past three years) has expanded from 0.8 per cent in FY20 to 5.1 per cent in FY24. While the stock was down 5.4 per cent today, most analysts covering the stock have a buy rating.