The reorganisation of Tata Consumer Products Limited (TCPL) might entail costs in the short term but will help in creating an efficient and effective business in the long run, the company’s MD and CEO Sunil D’Souza indicated while addressing a post-earnings investor call on August 11.
“In the past year, restructuring costs have risen because we had cut down layers in our teams. We acquired some of the businesses and rejigged the teams to make sure we are deriving synergies. So, while long term you will derive synergies, there'll be some short-term restructuring costs to make sure the business is right-sized,” he said.
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The company is still undergoing restructuring which would lead to further costs in the future, said the MD.
“The picture is yet to be played out in terms of Tata Coffee’s Indian and international restructuring. We have still not executed fully, because we don't have full regulatory approvals. But I can assure you that this is to right-size, and make the business much more effective and efficient,” added D’Souza.
Earlier in March, Tata Consumer Products announced the reorganisation of its business, which involved the merger of Tata Coffee’s plantation business into Tata Consumer Products Foods and Beverages (a wholly owned subsidiary of TCPL) and the remaining extraction and branded coffee business into TCPL itself.
The company also had announced plans to acquire a 10.5 percent stake in its UK subsidiary Tata Consumer Products UK Group by issuing 7.4 million equity shares (Rs 570 crore on a preferential basis for Rs 765 per share.)
The company on August 10 reported its results for the quarter-ended June. TCPL reported a net profit of Rs 255 crore in Q1, up 38 percent from Rs 185 crore reported in the year-ago period. Its consolidated revenue in the quarter stood at Rs 3,327 crore, 10.6 percent higher than Rs 3,009 crore in Q1 of FY22.
The company’s performance received mixed reviews from analysts.
“India beverages and foods volume performance of over 1 percent and -3 percent YoY was underwhelming. A high base (food volumes over 17 percent in 1QFY22) is one of the reasons. That said more than 20 percent price increase in salt (in last 18 months) had likely resulted in a higher profit pool for competitors to channelise it towards higher trade margins,” ICICI Securities said in a note.
The brokerage expects the benefits of simplification of corporate structure to be unlocked in FY22-24.
Edelweiss in its note said: “TCPL has seen robust growth across segment, ex-India beverages. While cost measures and price hikes helped in margin expansion, current inflationary trends and rainfall situation development is key monitorable going ahead.”
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