Discounted valuations offset near-term headwinds for Tata Consumer

Tata Consumer Products reports 14% revenue growth and 16% profit growth in Q2FY27, with strong performance in growth businesses and expectations of margin expansion in the second half

Tata Consumer Products Ltd (TCPL) on Monday reported its results for the second quarter of financial year 2026-27 (Q2FY27), which met or exceeded consensus. Consolidated revenue was up 14 per cent year-on-year (Y-o-Y) at ₹5,661 crore, with India volume up 11 per cent Y-o-Y. TCPL has taken price hikes of 8-10 per cent in many products in FY27 to date. The portfolio mix is changing with a focus on growth areas.

 

TCPL has generated double-digit revenue growth across segments (except tea) for the last five quarters. The portfolio is pivoting to high-growth segments like Sampann, Soulfull, Ready to Drink (RTD), Capital Foods, Organic India, etc. This should accelerate revenue growth. TCPL launched 22 new products in Q2FY27. 

 

The gross margin contracted 41 basis points (bps) Y-o-Y and 99 bps quarter-on-quarter (Q-o-Q) to 41.7 per cent due to input-inflation. But the company’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) grew 17 per cent Y-o-Y to ₹780 crore, with margin expansion of 31 bps Y-o-Y to 13.8 per cent. India A&P (advertising and promotion) spends were 5.5 per cent of sales in Q2, and 5.8 per cent in the first half (H1) of FY27. Interest costs reduced 23 per cent Y-o-Y, pushing up profit before tax (PBT). The reported profit after tax (PAT) grew 16 per cent to ₹470 crore, while adjusted PAT after exceptional items was up 18 per cent Y-o-Y to ₹480 crore.

 

TCPL offers premium pulses, dry fruits, breakfast cereals, snacks, RTD beverages, and cold-pressed oils, but tea and salt are the largest components. Salt is moving up the value-chain through a process of formalisation, while tea is a seasonal seller. Salt contributes 20 per cent to TCPL's revenue; its Q2FY27 revenue grew 15 per cent Y-o-Y while volumes rose 9 per cent. TCPL has taken a price hike of 6 per cent in salt in early October (adding to 6 per cent hike in June). The impact would be visible in Q3FY27.

 

The growth businesses portfolio (which includes Tata Sampann, RTD beverages, Capital Foods, and Organic India) grew sales by 40 per cent Y-o-Y in Q2FY27, contributing 38 per cent to India business revenue. Sampann sales expanded 57 per cent Y-o-Y, while RTD volume grew 34 per cent with value up 47 per cent Y-o-Y. Capital Foods grew by over 18 per cent Y-o-Y, and Organic India grew by over 9 per cent Y-o-Y. Both Sampann and RTD categories grew volumes despite high bases of above 30 per cent in Q2FY26. TCPL has reiterated guidance for over 30 per cent value growth in these fast-track businesses over the next two-three years.

 

The management says it is focused on operating profit margin (OPM) expansion of 50-70 bps in FY27, and expects margins to expand from current levels due to price hikes and peak seasons for India tea and US coffee. Also Sampann margins have risen 280-290 bps Y-o-Y to over 14 per cent, and international margins are also expected to rise. TCPL thinks the India OPM can cross 17 per cent in next three years.

 

Tea volume was flat Y-o-Y, while revenue declined 1 per cent. TCPL took a price hike of 6 per cent in early October to meet inflation. In the international segment, beverage sales grew 7 per cent Y-o-Y (down 2 per cent in constant currency, or CC). In CC, while US coffee grew at 6 per cent Y-o-Y, the UK was down 8 per cent, and Canada was up 8 per cent.

 

The management expects mid-single-digit volume growth for tea and salt, alongside pricing hikes across both portfolios. Better margins are likely in the second half (H2) of FY27, as tea sees gains in autumn and winter seasons. The festive season should push demand for Capital Foods. The margin guidance of 50-70 bps gain in FY27 is based on these assumptions. In terms of raw material costs, robusta and arabica prices may soften, improving US coffee margins. The Soulfull segment grew 23 per cent last year, and targets 25-30 per cent growth in FY27. In the quick-commerce (qcom) category, Sampann portfolio items are in top positions.

 

TCPL has introduced AI in the Himalayan factory to do online bottling inspection. It is using AI-led guidance about tea to assess crop situation, temperature, and heat, and to provide timing recommendations on when to buy. It is also using AI for invoice validation.

 

The company has an impressively consistent growth profile. The key risks include volatility in commodity prices, weather-related changes in demand, and disruptions to export routes. The stock has corrected substantially over the past 12 months. This makes valuations more attractive, and analysts now seem to have reached a bullish consensus.  

The writer is a New Delhi-based independent journalist