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Tata Consumer share up 5% despite muted Q3; tea inflation worries analysts

Analysts observed that Tata Consumer Products faced margin pressures primarily due to inflationary tea prices but continued to post robust volume growth across its beverage and food segments

Tata Consumer to replace Gail India in Nifty 50 effective March 31

Tanmay Tiwary New Delhi

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Fast moving consumer goods (FMCG) company Tata Consumer Products shares saw a strong demand on Friday, January 31, 2025, as the scrip surged up to 5.41 per cent to an intraday high of Rs 1,019.95 per share on the BSE.
 
The increase in Tata Consumer Products share price came despite the company’s muted Q3 financial results. Tata Consumer Products reported a slight 0.04 per cent year-on-year (Y-o-Y) growth in profit at Rs 278.9 crore in Q3FY25, from Rs 278.8 crore in Q3FY24.
 
Revenue, however, jumped 16.8 per cent Y-o-Y to Rs 4,443.6 crore in Q3FY25, compared to Rs 3,803.9 crore in Q3FY24.
 
 
Operationally, performance remained subdued with Ebitda dipping 1.3 per cent Y-o-Y to Rs 564.7 crore from Rs 572.4 crore in Q3FY24. Notably, Ebitda margin contracted 240 bps to 12.7 per cent in Q3FY25, compared to 15.1 per cent in Q3FY24.
 
Analysts observed that Tata Consumer Products faced margin pressures primarily due to inflationary tea prices but continued to post robust volume growth across its beverage and food segments. India’s packaged beverage volumes grew 10 per cent, with a 7 per cent volume growth.
 
Despite these challenges, the company’s efforts to expand distribution and introduce differentiated products provided a silver lining.  ALSO READ: Brokerages bullish on L&T post steady Q3, eye domestic capex, global growth
 
ICICI Securities, in a note, indicated that Tata Consumer Products’ Q3 margins were impacted by around 25 per cent inflation in tea prices in India. They noted that this pressure may persist until the arrival of the new crop in Q2FY26, but they remained optimistic about the company’s investments. These include expanding direct reach to 1.8 million outlets and increasing the number of distributors, DSRs, super-stockists, and sub-distributors by 10 per cent, 30 per cent, 30 per cent, and 50 per cent, respectively, between March and December 2024. 
 
The company has also raised tea prices by 10 per cent, which will begin to reflect more fully in Q4FY25. Additionally, Tata Consumer Products has focused on differentiating its products and investing in food services and pharmacy channels. The value-added salt and growth businesses have also shown strong year-on-year growth. The inflation in coffee prices has benefited the non-branded business, with Ebit margin expansion of 880 bps Y-o-Y.
 
Factoring in the ongoing tea inflation, ICICI Securities reduced their earnings estimates for FY25–26E by 7.6–7.9 per cent but maintained an ‘ADD’ rating.
 
Nuvama, too, cited concerns over the inflationary tea costs and revised its FY25/26/27E EPS estimates downwards by 9.7 per cent, 7.1 per cent, and 7.2 per cent, respectively. Thus, Nuvama analysts set a target price of Rs 1,255 (down from Rs 1,350) and maintained their ‘Buy’ rating.
 
Similarly, Motilal Oswal noted that Tata Consumer Products reported a weak performance in Q3FY25, with Ebit declining 15 per cent Y-o-Y due to higher input costs, specifically tea inflation.   ALSO READ: Analysts cautious on Bank of Baroda after mixed Q3; share price falls 5%
 
The Indian branded business Ebit dropped 43 per cent Y-o-Y. This decline was partially offset by a 53 per cent Y-o-Y increase in Ebit from the international branded beverage segment and an 89 per cent Y-o-Y growth in the non-branded business. 
 
Going forward, Motilal Oswal believes margins in the Indian business are likely to recover, as the company has implemented price hikes on salt and tea. However, input costs will continue to weigh on margins in the near-term. They largely maintained their FY25/FY26/FY27 Ebitda estimates and reiterated a ‘Buy’ rating with a target price of Rs 1,130.
 
Meanwhile, Goldman Sachs reportedly maintained its ‘Neutral’ rating with a target price of Rs 1,040. They highlighted the sharp margin decline due to tea inflation but noted the strong volume growth relative to competitors like HUL.

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First Published: Jan 31 2025 | 10:24 AM IST

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