Tata Consumer’s Tea Business to Face Another Challenging Quarter Before Margin Recovery
Tata Consumer Products Ltd., the Tata Group’s consumer goods company, has announced its financial results for the June quarter, which showed a 12% growth in branded tea business revenue. However, the company’s branded tea business margins have taken a hit, and it expects the challenging situation to persist for another quarter before it recovers.
According to Sunil D’Souza, managing director and chief executive officer of TCPL, the company has passed about 70% of the cost burden to consumers, and the remaining 30% has impacted its margins by 10 percentage points. He expects the company’s margins to recover by the December quarter, supported by lower auction prices and the improved pass-through of cost inflation.
Auction Prices to Help Margin Recovery
D’Souza mentioned that tea prices at auction centres are currently about 13% lower year-on-year. Last year, the price rise was 30%, but this year, the company expects it to be in the mid-to-high single digits, which should lead to an expansion of tea margins.
Historical Margins to Be Achieved by Q3
The company’s branded tea business operates within a gross margin range of 34-37%. D’Souza expects the company’s margins to recover to the historical range by the third quarter of the fiscal year. He stated that the company will likely face one more quarter of pain before it achieves the historical margins.
Cost Inflation to Continue Impacting Margins
Despite the expected margin recovery, the company’s margins are likely to continue being impacted by cost inflation. D’Souza mentioned that the company has passed about 70% of the cost burden to consumers, and the remaining 30% has impacted its margins. He expects the company to continue to face cost inflation challenges in the coming quarters.
Conclusion
Tata Consumer Products Ltd.’s branded tea business is expected to face another challenging quarter before it recovers. The company’s margins have taken a hit due to the inability to pass the entire cost burden to consumers. However, the company expects its margins to recover by the December quarter, supported by lower auction prices and the improved pass-through of cost inflation. Investors should continue to monitor the company’s financial performance and its ability to recover its margins in the coming quarters.
