Tata Consumer salt and Starbucks biz a hit in Q4, tea market share loss a concern: Analysts

Tata Consumer’s all round beat in the January to March 2023 quarter, especially in the growth businesses, has got a thumbs up from brokerages. Morgan Stanley is expecting over 23 percent upside in the stock price of Tata Group’s fast-moving consumer goods (FMCG) firm.

Tata Consumer CFO L Krishnakumar said growth was led by the India business, which was up 15 percent, and comprised every component of the business, including tea, coffee, and food. Its growth portfolio consists of its business under Sampann, Soulfull and water, he added.

"For the quarter, revenue from operations increased by 14 percent as compared to the corresponding quarter of the previous year, mainly driven by underlying growth of 15 percent in India business, 6 percent in international business, and 9 percent in non-branded business," said TCPL in its earnings statement.

According to Krishnakumar, commodity inflation continues to be high. Tea prices have come down a bit but coffee and salt prices continue to be high, he added.

Morgan Stanley noted that the strong growth trends in salt and Sampann businesses are positive while the market share loss in tea business is negative for the company.

The brokerage remarks come after the firm said its salt business margin was almost back to the normative range. In its earnings presentation, Tata Consumer also admitted, “During the year, we gained market share in salt, but the tea volume share saw a marginal dip due to demand challenges in some of our key markets.

The firm’s salt revenue grew 24 percent during the quarter, on a high base of last year (Q4FY22 salt grew 15 percent) and for FY23, salt grew 25 percent, primarily led by pricing, after growing 17 percent in FY22.

Tata Consumer also said while the tea business in India was subdued due to demand challenges in some of our key markets, the interventions put in place have yielded positive results, with volume growth returning this quarter.

US markets saw category growth in tea on account of price increases though there was a decline in terms of volume. In the UK, the tea category in both regular and F&H saw growth led by pricing while in Canada, both regular black tea and specialty tea grew, led by pricing. India branded tea category saw muted growth, lower than its long-term average, the firm said.

Morgan Stanley highlighted the steady growth trends in the food business and “good performance” in growth businesses. It also pointed out that Starbucks’ revenue for the quarter grew 48 percent YoY, bringing FY23 growth to 71 percent, albeit on a base that was impacted by the pandemic. The brand added 71 new stores and entered 15 new cities during the year – the highest-ever annual store addition.

Nomura, meanwhile, noted that the core business saw improvement and international business witnessed margin improvement on a sequential basis.

Following the better-than-estimated Q4 results, the brokerage sees Tata Consumer further expanding its distribution reach by 50 percent over the medium term, investing in growth businesses with new sub-category entries (into Sampann, NourishCo, Soulful and exports) and raising its margin profile with premiumisation in core categories and ramping up new categories that have healthy margins.