Tata Consumer Products declines 6% on weak operational performance in Q4

Ebitda growth for the quarter was impacted by tea inflation in India and increased A&P investments, that more than offset the strong Ebitda growth in India food and International business

Shares of Tata Consumer Products dipped 6 per cent to Rs 614.25 on the BSE in the intra-day trade on Friday after the company reported a per cent rise in its consolidated earnings before interest, taxes, depreciation, and amortization (Ebitda) at Rs 317 crore for the quarter ended March 2021 (Q4FY21). Ebitda margin, too, contracted by 253 basis points (bps) to 10.44 per cent from 12.97 per cent in Q4FY20.

During the quarter under review, Tata Consumer Products' revenue grew by 26 per cent (24 per cent in constant currency terms) on year-on-year (YoY) basis to Rs 3,037 crore from Rs 2,405 crore in the year-ago quarter. The company incurred Rs 63.9 crore expenses on account of loss from disposal of overseas business entity. With lower Ebitda margins and extraordinary expenses, profit after tax was at Rs 74 crore as against a loss of Rs 133 crore YoY.

The company has attributed the sluggish growth in Ebitda to tea inflation in India and increased advertisement & promotion (A&P) investments, that more than offset the strong Ebitda growth in India food and International business. "India Foods business profits improved with higher volumes and strong cost saving measures. International Business (excluding foodservice) saw decline in profitability owing to significant YoY increase in A&P investments during the quarter," it said.

Analysts believe the sharp increase in tea procurement prices led to a significant contraction in gross margins.

"Though Tata Consumer Proudcts has taken price hikes and has cut overhead expense to safeguard operating margins, it was not enough. Tea, pulses & salt categories have continued to see consumption shift from loose to packaged foods, which is also resulting in strong volume growth over the last one year," ICICI Securities said in a note.

Moreover, given the second wave of the pandemic, the essentials categories would continue to see strong growth in future even as tea prices remain elevated. This, the brokerage says, would continue to pressurise margins in the medium term. "We need to see the progress of monsoon in north eastern region to assess price movement in the next three to four months," the brokerage firm said.

Tata Consumer Products is a focused consumer products company under Tata Group. The company’s portfolio of products includes tea, coffee, water, salt, pulses, spices, ready-to-cook offerings, breakfast cereals, snacks and mini meals. It is the second largest branded tea company in the world and includes key beverage brands such as Tata Tea, Tetley, Eight O’Clock Coffee, Tata Coffee Grand, Himalayan Natural Mineral Water, Tata Water Plus and Tata Gluco Plus.

At 11:08 am, the stock was trading 5 per cent lower at Rs 622 on the BSE, as compared to a 0.65 per cent rise in the S&P BSE Sensex. Trading volumes on the counter jumped three-fold with a combined 9.1 million equity shares changing hands on the NSE and BSE till the time of writing of this report.