Tata Consumer expects margins to improve as tea prices cool off; oil-led inflation still cause of concern

With tea prices seeing some ease, yet higher from august 2019 levels, TCPL MD Sunil D'Souza said that the company will continue to be dynamic in pricing to drive competitive volume & value growth.

On the foods business, he added that the company is seeing inflationary trends in the cost of coal and energy and in addition, packaging and freight costs are starting creep up. “Costs are creeping up because of fuel & oil-led inflation and we anticipate this will last longer than all pieces put together,” D’Souza said, adding that the company is looking at revenue management, packaging sizes and hence pricing, along with managing the right ad and promotional spends to balance costs.

The foods business will be the growth driver for TCPL going forward where it sees a large opportunity to grow organically and inorganically. “We are sitting with Rs 2,250 crore of cash, which is enough firepower for acquisitions when we see the right opportunities,” D’Souza further added.

The India foods business saw a revenue growth of 22.7 percent and volume growth of 16 percent, despite a high base, with the company gaining 300bps market share in the salt business.

Speaking of specific business segments, the management also said that it is working to grow the spices business, and is close to finishing building one national brand for spices with variants. The margins are attractive in spices and will see acceleration in the business going forward, he added.

D’Souza also added that the Himalayan water business recorded breakeven for the quarter.

With out-of-home picking up, Tata Starbucks too, the company said posted a strong recovery. The same store sales in September, D’Souza said stood at 94 percent of September 2019 levels. The company added 14 new stores during the quarter and entered one new city – Jaipur.

In terms of distribution, the company said that direct reach has exceeded its target hitting 1.1 million stores as of September. The company has now moved up the target to 1.3 million stores by the end of FY22. The company also aims to grow its rural distributors from the current 4000+ to 5,000 distributors by March 2022. E-commerce sales also grew 39 YoY, and currently contribute to 7 percent of domestic sales

In its outlook, the company said that it continues to stay focused on driving growth in the core business, while adding new levers of growth, and as Out-Of-Home in India is moves towards normalization, Starbucks recovery & NourishCo growth momentum should continue.