Informist, Wednesday, Apr 24, 2024

--Tata Consumer: See tea volume growth returning to 5% in medium term

--Tata Consumer: Coffee rates up, hope to maintain US coffee ops margin

--Tata Consumer: Aim to be full FMCG co, but focus on food, beverages

By Avishek Rakshit & Shiladitya Pandit

KOLKATA - Tata Consumer Products Ltd today said it will continue to focus on expanding its food and beverages portfolios even as it targets to evolve into a complete fast moving consumer goods company in the longer run. The comments came at an investors' call where the company detailed its financial performance for the quarter and year ended March.

Managing Director and Chief Executive Officer Sunil D'Souza said the new business growth verticals are expected to grow 30% year-on-year and the company targets a revenue contribution of 30% from these businesses in the near term.

For the financial year ended March, these businesses, which include brands like Tata Sampann, NourishCo, Tata Soulfull, Tata SmartFoodz, posted a 40% year-on-year revenue growth. Together with the traditional salt business, the relatively new foods business accounted for around 28% of the company's revenues.

The fast moving consumer goods industry is dominated by players like Hindustan Unilever Ltd, ITC Ltd and others, who have a wide portfolio including foods, beverages, personal care products and home care products.

Although HUL has a wide range of food products and is the market leader in packaged tea in India, food and refreshments portfolio accounts for only 25% of the company's annual revenues. The largest share comes from beauty and personal care products, and home care products with each accounting for around 36% of the annual turnover.

ITC, which is India's market leader in cigarettes, and has a strong agricultural trading and procurement business, earns around 28% of its annual revenues from foods, personal care, and home care businesses.

Compared with these companies, Tata Consumer Products' almost entire revenue comes from food and beverage sales.

D’Souza said that the company will continue to grow the food and beverages business via organic and inorganic growth routes. It is only when the company will exhaust its "runway in foods and beverages", that Tata Consumer Products will look for expansion beyond these verticals, he said.

The company, which is the country's second-largest tea retailer, and also has plantations business in associate companies, has been diversifying presence in new verticals like infusions, sauces, food products, and others. In January, it signed an agreement to acquire 100% stake in Capital Foods, owner of 'Ching’s Secret' and 'Smith & Jones' brands, in a phased manner, thereby marking foray into the noodles, sauces, and condiments space.

Since the past few quarters, the company has also been strengthening infusions portfolio under the NourishCo brand that registered 33% growth in the last financial year at 8.3 bln rupees. Similarly, the Tata Sampann brand of foods ended the last financial year with a 45% revenue growth, and another foods brand, Tata Soulfull, grew 42%.

TEA, OVERSEAS OPS

D'Souza said agrees to differ with market research agency Nielsen, which has projected a 7% growth in tea retailing industry, and put growth estimates lower. Instead, he said the actual growth in the tea retailing sector in the country will become clearer when competitive information comes in.

Responding to a question, D'Souza said that in the near term, the growth in tea retailing could be lower at around 3%, but in the mid term, it can be 5%.

The top official said the international business, which accounts for 26% of annual revenues, and entirely comprises

beverage products like tea, coffee, infusions, and others, is expected to be margin accretive that will help the company exceed its current earnings before interest, tax, depreciation, and amortisation margin of 15.3%. This is despite the increasing trend in global coffee prices.

Coffee products comprise the majority of the sales in the US, and tea accounts for the majority of sales in the UK and Canada. For the quarter ended March, the company saw a 2.7?cline in sales of coffee in the US, while black tea, and fruit and herbal tea sales were up by 15% in the UK. In comparison, black tea sales increased 3.4% in Canada, and by 7.3% in India, and speciality tea sales were up 5.3% in Canada.

For the quarter ended March, Tata Consumer Products failed to meet the Street's expectations, and posted a consolidated net profit of 2.2 bln rupees, down 19.4% year-on-year. The consolidated revenue, however, increased to 39.3 bln rupees, up 8.5% year-on-year.

The share price fell 67 rupees, or 5.7%, to an intraday low of 1,106 rupees today after the company reported the decline in profits that was attributed to continued losses by associate companies in the plantations business and one-time loss

arising from business amalgamations. At 1447 IST, the stock was down 5% at 1,116 rupees on the National Stock Exchange.

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Vandana Hingorani

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