Robust revenue growth, margin recovery ahead for Tata Consumer Products

Price hikes, lower input costs, and double-digit growth are major positives for fast-moving consumer goods (FMCG) major Tata Consumer Products, going into the financial year 2025-26 (FY26). Given that the company has been executing well on the distribution and innovation (new products) fronts, the Street expects it to maintain a robust growth trajectory going ahead.

 

While most brokerages have built in healthy revenue and profit delivery by the company over the next few years, the stock may not see much upside given high valuations. At 83.5 times its FY26 earnings estimates, it is the most expensive stock in the FMCG large capitalisation universe.

 

The immediate trigger for the stock is the March-quarter result. Given an inline performance and expectations of improvement in margins, the stock was a tad higher in a weak market. Pricing gains for its core businesses led to a 17.3 per cent rise in net sales, which was ahead of the Street’s estimates. The gains measured on an organic basis (excluding acquisitions) was up 12 per cent.

 

The Indian branded business, comprising packaged beverages and foods segments, grew 22 per cent year-on-year (Y-o-Y) while organic growth stood at 13 per cent. The underlying volume growth for the India business was at 5.9 per cent aided by a 2 per cent growth in tea volumes, and about 5 per cent growth of the salt business. Within the food business, salt revenues grew 13 per cent while Tata Sampann registered a 30 per cent growth. Indian branded business comprises the core tea, coffee, and salt brands, and accounts for about two-thirds of the consolidated revenues.

 

The company is focused on ensuring the upward trajectory of its growth businesses. The segment, which accounted for 28 per cent of India business in FY25, delivered an organic growth of 18 per cent. This was below its target growth rate of 30 per cent due to muted show in the ready-to-drink segment that gained only 2 per cent. The company, however, believes that it will hit the 30 per cent growth target ahead, led by corrective actions in Tata Gluco Plus, and strong momentum across the rest of the portfolio.

 

While revenue growth was robust, the operating profit of the India business fell 6 per cent due to rising tea costs while at the international level, the metric fell 15 per cent due to higher coffee prices and expenses. Margins at the gross level were down 420 basis points (bps) while at the operating level they fell 260 bps as compared to the year-ago quarter. Brokerages believe that going ahead, margins in the India business are expected to recover as the company has hiked the prices of salt and tea, and there are early signs of a good tea crop in March and April this year.

 

Analysts led by Amit Purohit of Elara Securities believe that despite the ongoing economic slowdown, the company’s diversified product portfolio and expanding distribution provide good visibility for double-digit sales growth and margin improvement. The brokerage has an “accumulate” rating, with sum of the parts-based target price raised to ₹1,200 (from ₹1,060).

 

Vishal Punmiya and Manas Rastogi of YES Securities are assigning the company a “premium multiple” as compared to some of its domestic FMCG peers, given an elongated trajectory of strong revenue growth along with margin improvement. While the company is positive on the outlook, they have lowered their recommendation to “add” from “buy” due to limited upside on a one-year forward basis.