Tata Consumer Products Limited (TATACONSUM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Tata Consumer Products Q1 FY '27 Earnings Conference Call. Please note that this conference is being recorded. I now hand the conference over to Ms. Nidhi Verma, Head of Investor Relations and Corporate Communications. Thank you, and over to you.

Thank you so much, and welcome, everyone, to the Q1 FY '27 call for Tata Consumer. Earlier today, we announced our results and uploaded the investor presentation and Hope you have seen the refreshed design. We've also tried to simplify and align the segmentation of the businesses in line with what we share more color with you on. With that, if you go to the -- yes, I just want to draw your attention to the disclaimer statement, which is up on your screen before we begin. As usual, I'm joined by Mr. Sunil D'Souza, Managing Director and CEO; Mr. Ashish Goenka, Group CFO; Mr. Ajit Krishna Kumar, Executive Director and COO. In terms of the format, we will spend about 15-odd minutes walking you through the key highlights and performance updates during the quarter, and then we will open the floor for Q&A. With that, I'll hand it over to Sunil.

Thanks, Nidhi. So in summary, overall, our consolidated revenue grew 12% with the India business delivering a 13% UV India tea volumes were up by 2% despite the prolonged summer, but revenue declined 4% because as the costs came down, we've been passing the benefit to the consumers. Salt delivered 7% revenue growth, led by 7% volume growth despite the fact that in the month of June, we did take a price increase. Growth businesses grew 47% year-on-year and scaled to 36%. In terms of growth, I think this was the best ever quarter for the growth businesses for and they account for more than 1/3 of the India business now. [ Sampan ] grew 5%, and it was broad-based volume growth. RTD revenue was up 41% with robust volume growth Capital Foods and organic India grew 35% combined. International business grew 3% in constant currency. And overall, including ForEx, grew by 16%. The U.S. business delivered 7% and constant currency growth with, I think, the seventh quarter of consecutive share non-branded business as coffee prices came down in line with expectations. We saw it declining 7%. If I take constant currency, it was down by 10%. We delivered a 19% growth in EBITDA and margins expanded 70 bps to 13.6%. Innovation fired on all cylinders, and we launched 14 new products during the matter, and we've got a robust pipeline for innovation for the rest of the year. Starbucks had probably a very good quarter. Revenue grew 11% year-on-year. I have to say that we were cycling a slightly subdued quarter last year during the same quarter. But even without that, the same-store sales were in a healthy range. So in terms of businesses, India sold up 7% revenue north of INR 1,000 crores. Indian coffee was down revenue Growth businesses, if you look at it now, this is a bigger segment than India salt and tea and coffee revenue was INR 1,300 crores, growing at 47%. International constant currency 3 reported 16% growth, INR 245 crores. Non-branded close to INR 500 crores, down 7%, but in constant currency, down 10%. So consolidated all in constant currency, up by 9%, reported up by 12% at INR 5,349 crores. Financials, 12% revenue growth translated to 19% EBITDA growth and a 13.6% margin. PBT was up 27% and net profit was up INR 29 crore and INR 27 crores EPS was 4.31%. And last quarter, if you remember, we started reporting adjusted EPS because we do amortize some of the brands from the businesses that we have acquired. If I net that off, our adjusted EPS is INR 4.67 per share. And if I go to the strategic priorities, we continue to put money behind A&P. Our Q1 was 6.1% behind almost all our brands. Growth businesses are now accounting for 36%, growing at 47% year-on-year. Our innovation focuses on 3 big pillars: health and wellness, convenience and premiumization, and we had launches across all these pillars. We continue to focus on sustainability. We've got -- we have now a number of Dow Jones World index which we were incorporated on December 4, 2025. [indiscernible], we moved from 61 to 67 and 62 to 68. Specific businesses. India Beverages, I talked about volume being up revenue down 4%. Unusually strong summer, along with minor issue of LPG shortages impacting small restaurants and street side vendors, including hot tea shops in the south, did impact the business. But coffee continued to grow 24%. Solid, strong show despite the fact that we took calibrated price increases, as I mentioned, in June, broadly. Tata's [indiscernible] the orange bag moved from 30 to 32 in terms of MRP. But value-added sources continue to deliver strong growth at Tara Sampann had a stellar quarter. We had a 58% revenue growth driven by volume. We had growth across categories whether it is core or our new launches of dry fruits and Colpraoil and our whole spices had another great quarter. Our RTD strong growth, revenue up 41%, driven by 38% volume growth across the portfolio, across our premium portfolio, Tata Gluco Plus as well as Tata Copper water. We also launched two variants of Kombucha Zero focusing on building out our premium RTD and coffee portfolio. Capital foods in organic India, a strong growth. Capital Foods revenue at 232 organic India 118, combined gross margin continues to be very healthy at close to 50%. We had growth of 40% for capital pools, 27% for organic India. We continue to focus on new launches to expand the addressable categories for both the businesses. We do think that apart from various other items, including innovation, including A&P, the focus on execution, including the restructuring of the go-to-market to drive specific focus behind these brands have started showing encouraging early results. International, another good quarter. Constant currency up 3% reported 16%. U.S. business, as I mentioned, 7% constant currency growth. Overall, the U.S., U.K. and Canada were impacted, especially in the month of June by the unusually warm summer that they experienced, and this did have an impact on the business, more specifically in the U.K. and specifically in the black tea category. But the tea [indiscernible] are specialty and fruit and herbal brands continued to deliver strong growth. We've also continued to gain share in those segments. Canada revenue was flat. However, value share improved across regular and specialty. Nonbranded business, as in line with the coffee prices declining globally was down 10% in constant currency, while solubles, which is primarily a pass-through business, declined plantation declined 8%, but proactive hedging did help us mitigate some of the impact of coffee price corrections. Starbucks, I heard one of their very good quarters. Revenue was up 11%. As I mentioned, we are cycling a slightly subdued quarter with the store closures impacted by operations in due last year in the month of May. But even if I net that off, we had mid-single-digit same-store sales growth, which boards a very good numbers for the quarters to come. We did close some cafes in the short term, and we relaunched Starbucks Rewards to drive engagement and frequency for the business. Over to Ashish for the financials.

Thank you, Sunil. As Sunil mentioned, we had a strong quarter at a consolidated revenue growth was 12%. Revenue came in at INR 5,349 crores. In terms of EBITDA, we expanded our EBITDA margin by 70 basis points over last year. EBITDA growth came in at 19% and leading to an adjusted EPS growth of 25%. In terms of consolidated financials, revenue top line growth at 12%, EBITDA growing at 19%, margin expansion of 70 basis points. EBIT growth was 21%, and the group net profit growth was 29%. Margins at a group net profit level coming in at 8%. In terms of segment performance, we have seen India segment results improving on the back of improved margins in tea. Of course, some level of offset with Salt, but all businesses improving margins national business is flattish over previous periods. And nonbranded, we saw some dilution in margin this quarter, largely on account of the correction in coffee prices and some FX-related losses, but should come back in the subsequent quarters. So I think that's in a nutshell on the financial. I'll hand it back to Nadhi. Thank you.

Operator, could we take the questions from the Q&A line please?

[Operator Instructions].

I think there is some issue with the line. Can you give us all right?

Yes. Are you able to hear me now?

Yes, yes. Very clear.

[Operator Instructions]. We'll take our first question from the line of Abneesh Roy from Nuvama.

spectacular growth business. I have three sub questions on the growth business. One is I do understand a lot of this is outsourced in terms of manufacturing. But given many new categories and some of the categories have hit a threshold size you need to invest in your own capacity and any details on that from next 1 to 2 years' perspective in the growth business. A second sub question is, there is a fair bit of cost inflation in some of your growth segments. So for example, spices, there is a severe inflation. Similarly in dry through again because of the Iran crisis sale issue and even in terms of [indiscernible] edible oil. Have you been able to pass on most of this. Obviously, this in growth business revenue growth going ahead? I wanted to understand from a margins perspective. Last question on the growth business. Capital foods and organic India initial taping troubles were there. Are those now fully resolved? And can this be the new normal in terms of 35% growth in the medium term. That is my first question.

So Abneesh, #1 is in terms of own manufacturing versus outsourced. So let me put it this way. for organic India, most of the infusions, supplements, et cetera, we make it in-house. There are a few categories which we go out. In Capital Foods, again, most of the production is in-house. We do go to some third parties, but then the IP part of it, we do it ourselves. RTD is, if I may put it, it's dedicated co-packers. Who are primarily running it for us. So in those terms, it is almost exclusive packaging, exclusive manufacturing, except that CapEx and operations are run by someone else. It is just in something that we do a lot of outsourcing. But let me put it this way. Where we see an opportunity where there is scale already in the category, and there is value of it bringing it in-house, we will definitely evaluate. Now the good and bad part is more -- for most of these categories, the manufacturing CapExes are not very heavy. So it should not be too difficult. But if it makes financial sense, to bring it in-house. And when I say bring it in-house, remember its scale as well as the geographical spread. So also the distribution of the category matters because is it 1 facility, is it five facilities that is what we've got to evaluate. So we do it from time to time. There are a certain number of categories that we are doing an evaluation whether consolidation makes sense. So that's number one. Number two, in terms of your cost inflation. Yes, cost inflation, very clearly, Abneesh, if it is -- if there is inflation, it will pass on there might be a bit of a time lag between when it hits us and when we pass it on. But I would say, broadly, we would pass on the inflation and try to ensure that we maintain margins. Incidentally, for Sapan, for example, our overall growth category we have improved margins during this quarter, right? That's number two. And number three, with your CF and I, yes, we have said our aspirations are at 25% to 30% growth. And I would take it 1 quarter at a time. Like I said, we've got innovation firing. We've got A&P to bear. We've got execution going in specifically the split go-to-market by the time we relaid the system was in the month of February. It did take time to fill up all the vacancies on the sales reps, et cetera. But that is starting to bear fruit. Yes. The answer to that question is 25% to 30% should be the new normal going forward.

Sure. My second and last question, again on both business. Given good price hikes in 3 subsegments of growth portfolio and two large acquisitions now firing quite well. Are you looking to upgrade your 30% kind of guidance, which you generally give for growth business? And a related question is prices and edible oil are two very large segments. Currently, you seem to be playing slightly in the more premium, obviously, edible oil is clearly in the premium. At some stage, you look at March end of crises and obviously, healthy end of edible oil, something with Saffola play, given your good success in a lot of these segments, at some stage, would you need a healthy edible oil portfolio also because coal price is too niche and too premium in mind.

Abneesh, let me answer your second question first. So we have our entire road map drawn out in terms of the categories that we want to play, which includes a very clear thing of what capabilities do we have across the chain, including procurement, including the marketing, including manufacturing, et cetera. One of the defining factors is the margins in those categories, the growth possibilities in those categories and most importantly, the trust deficit. So when we had looked at the edible oil portfolio, the reason we decided to get into the cold press oils is because we did see a consumer trust deficit in the fact of whether it is refined or cold press, and as soon as we put the Tata brand name, it made magic, and we figured we could drive growth with margins in those categories. the base edible oil, right now, our hypothesis is we will -- we do not have the entire capability and the muscles to play in that segment. And we will struggle to find differentiators especially given the fact that trust deficit is not so strong in that segment. But never say no. We continue to look at options on how do we unlock various segments from time to time. So in spices, spices, again, apart from the stats, which is the CTC, which is, I would say, broadly similar across the country, not exactly similar. Because I said it earlier, the Korea under Green versus the Korean brown into different parts of the country does make a difference. But the blended spices are broadly regional place and they are very, very sticky over generations. So we figured hole spices and straight spices are key, how do I say, focus areas for driving growth with the margins that we are looking for in those categories. So we'll stay focused. I think the runway there itself is long enough for us. So that's number one. To answer your question number one, our guidance remains 30% growth. We will hit it out of the park once in a while. But yes, broadly, I would stay focused on the 30%.

Next question is from the line of Vivek M. From Jefferies.

My first question is, again, on the growth business. On the Sanpan business. Last 2 quarters, we have seen -- I mean, you have been doing very well, to be fair for the last several quarters. But last 2 quarters, specifically has been very, very strong. You mentioned that it was broad-based core also did very well. Anything else beyond -- is it like the new products which are actually adding to the big growth rate of whatever that number is, let's say, 35%, 40%, the rest coming in from the new segments? Or is it even the police itself have seen an acceleration? If so, why?

So Vivek, the core portfolio of Sanpan, which is pulses, spices, Poha, Vermicelli, all that has been growing at about a 30% growth rate, which I have guided for. and cold press oil and dry rules have added to that growth. So let me put it that way. So overall, we are happy with the portfolio, and we are very, very happy with the dry fruits and cold press oils.

Okay. Got it. And in terms of the salt business, the base is also high, but now that you have taken up prices at the back end of the quarter. As we go ahead into the rest of the year, the growth rate should pick up and may touch closer to double digit or higher than actually or comfortably in double digit?

So Vivek, we've always said mid- to high single digits is the growth. So I would say 5% to 7% is a good number to target. Especially, I would say this price hike will probably take a quarter or so to settle. After that, we will keep pushing the envelope. We are now touching close to a 39% share in salt. And our ambition is very, very quickly across the month.

Okay. Got it. And last one is on the capital pools. Do you think that the worst is clearly behind and you have all the ingredients and everything in place to see a sustained growth in this portfolio?

So I do think our innovation has started to work our media has started to work, and we've coupled that with execution. So if you ask me, yes, we think we've started to put the levers together. But like I said, early days, I would take it 1 quarter at a time. We do see green shoots. The go-to-market is still not fully fleshed out. because, for example, once we've decided and we relaid it, in some places, we had some trouble finding distributor, some trouble finding DSRs, DSRs take time to join I would say, broadly, we are in place on the structure now. So hopefully, 25%, 30% growth should be the norm going forward.

And just a follow-up on this. From a primary secondary perspective, nothing to -- anything to call out in capital speaks.

No, no, no. So one of the things that we are laser focused on is making sure our ARS system works, and therefore, inventory days are defined. It is inventory defined minus -- sorry, the thing is very, very clear. We had calculated piece. And therefore, there is nothing to do with the -- if you are mentioning the difference between primary and secondary, broadly in line in India, there was a little bit of export phasing, which moved to this quarter, but that's not significant enough for us to call it out. Our export business also now it's almost, what, 1 year of cycling tariffs and the initial hit that we took from down stocking in the U.S., et cetera, that happened last year. But broadly, I would say, on track.

Got it. And last question, Sunil. I know it may not be a fair direct comparison. But sequentially, when I look at your Indian branded margins versus international margins, both have exactly moved in opposite direction, whereas your chief commodities deflated. So less India margins have gone down by 250 basis points or international by almost 250 have moved up. What is the reason for this divergence?

So I can comment, Vivek, I think in U.S., we are -- in international, we are seeing the benefit of U.S. margin improving and they'll continue to improve because coffee prices are normalizing. And we've always said that as coffee prices normalize, we'll see improvement in U.S. margin. And of course, there's been some phasing in terms of A&P. On India, we have seen a contraction in margin largely on account of the fact that we had inflationary impact, plus we have also stepped up A&P. so broadly, too, of course, we had some FX losses also this quarter, which also contributed to the margin decline.

Next question is from the line of Mihir Shah from Nomura.

Okay. Great. Congratulations on great performance. I just wanted to check on firstly. How far are you with respect to procurement what is the level of inflation you are seeing in tea? And how should one think about the deep pricing from here on, which is going through a price cut of 5% to 6% currently?

So Mihir, I think this is -- I maintain my stance that I've stopped trying to forecast the completely. We will move in line with the market. last quarter, a little bit of impact of the extended summer and lack of rains in specific parts of the South as well as North. Overall, we're seeing about 7% to 10%, I would say, inflation, that is for now. But the peak cropping season has just started to come in. Right now, the crop seems to be quite good in we saw inflation more at the bottom end of the portfolio rather than the higher end of the portfolio. But that was the trend till now, right? So we -- I mean, we are not into a significant portion of our buying. We've got a long, long, long way to go because, like I said, the peak cropping season has just started and it's about 30 days for -- between the cropping and by the time it hits our inventories. So I would say, right now, we're seeing 7% to 10%. We're planning for a 7 to 10. And if that happens, then we will look at judicious pricing to make sure margins are maintained. We've already taken some minor price increases in the month of June. But if the trend persists, we will look at maintaining margins and take pricing up. But for now, like I said, we are not calling a trend for now. We will wait and watch at least for the next 15, 30 days because you've got a lot of buying to go.

Got it. That is very useful and helpful, Sunil. So secondly, I wanted to check on the overall sales growth, it seems that you will be starting to lap higher base across many of your subcategories. How should one think about the overall sales growth from year on? Will it remain in the early double-digit trajectory or there is something that can drive better than double digit early double-digit revenue growth from this quarter onwards?

So I keep maintaining that we will drive double-digit growth, right? There will be those odd quarters where we will have mid-teens. There will be those quarters where it will be low double digits. And here's the thing. I don't think lapping any of the basis matters. Tea and salt, we've got very decent shares and it's category-driven growth, but our growth businesses, runways are as long as you can imagine, right? Whether it is Sampann it is RTD, I think we've got long runway and therefore, delivering double-digit growth should not be an issue.

No, that is quite visible that you will be able to deliver double-digit growth. We was hoping to see. So because you did mention on Sampann, we've seen over the past odd quarters, you're doing upwards of 40%, maybe some quarters of 70%, 60% growth, and you're still maintaining 25% and 30% growth rate. So I wanted to get an understanding on that a bit better.

Overall, for the growth portfolio, we are targeting 30% less various permutations, combinations. We've got a portfolio. Some things we'll fire. Some things will be a little bit lagging. And therefore, I think 30% is a good number to take.

Understood. Understood. Lastly, Sunil, if I can check on -- so while gross margin sequentially have done better, EBIT margin has seen some kind of contraction with respect to the other costs, how are you pleased with the other costs? And how should we think about margins, which are sitting at 13.5% now? And while you -- I think you had closed at about 14.5%. So can one expect margins to start building up from here on sequentially?

So we've guided for 50 to 70 bps margin expansion for the year. You have to just bear in mind that we are a food and beverage business, and we've got seasonality in our business. Tea, for example, will peak in Q3, Q4 because winter sets in, in the north. Some of the businesses like capital foods, et cetera, Q2, Q3 peaks because of the festive seasons around that time. Salt is largely nonseasonal excepting there is a bit of down stocking during the monsoons by trade, that's historical. So I would not look at the quarter sequentially my comparison always is versus the same quarter last year. And versus the same quarter last year, we've delivered 70 bps increase and which is in line with our guidance for the full year. So we do maintain that this year, we expect to deliver 50 to 70 bps of margin expansion.