Tata Consumer shrugs off lag from urban slow down, to pursue volume growth in Q4

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Tata Consumer Products flagged no impact from the urban slowdown, attributing its growth to the strong performance of modern trade and e-commerce, which supported volume growth across its segments.. The owner of Tetley tea and Ching's Secret noodles brands reported a 17 per cent YoY rise to Rs 4,444 crore in revenue in the quarter ending December 31, boosted by the India beverages and foods business, which contributes nearly 70 percent of its topline.

"I think I am probably seeing a different picture than everyone else. If you do not count modern trade and e-commerce and only count general trade, my urban growth is low single digits. Rural growth is close to double digits. If I add back modern trade which is primarily urban and e-commerce including quick commerce which is primarily urban, then my urban growth also is close to double digits," said managing director Sunil D’Souza, in a post-earnings call with analysts.

The comments come as most players in the fast moving consumer goods (FMCG) space flagged pain from the slowdown in the urban demand, which also sparked the latest trend wherein consumers started buying smaller packets of premium products to cut costs amid inflationary pressure. Industry leader Hindustan Unilever flagged earlier this week that continued deceleration of urban discretionary spending continued to impact the volume growth of the consumer goods company which reported a flattish underlying volume growth (UVG) in the December quarter.

D’Souza attributed the improvement in its distribution network, increased share of e-commerce and measures like auto replenishment, some factors behind the impressive volume numbers. Quarterly revenue from the beverages business grew 9% (excluding Organic India), while foods business revenue grew 31% (+11% excluding Capital Foods), the company said.

Commenting on the rise in share of e-commerce sales, which now accounts 15 per cent of the topline, D’Souza said, "I will be where the consumer is shopping and work backwards to figure out my profits. We have narrowed market share in the general trade (GT), modern trade (MT) is constant while, continue to increase market share in the e-commerce." E-commerce registered 59 per cent revenue growth in the third quarter, the company said in a presentation.

Meanwhile, the owner of Tetley Tea, saw its group profit fall 6 per cent to Rs 282 crore impacted by the inflation in the tea business and high interest costs. On a sequential basis, group net profit declined 23 per cent from Rs 367.2 crore reported in the previous quarter.

Tea business

In Q3, the company recorded a double digit growth in India tea business, backged by volume growth of 7 per cent. Despite the ongoing hike in raw material costs, the company expects market share in the tea business to go up in the coming quarters.

"My price index to locals has not changed dramatically. But as prices have gone up I think slowly, slowly the oxygen is getting thinner. So I would definitely say market share will go up," D’Souza added. So far, the company has passed on 40% of its costs to customers through price increases in the tea business. It expects moderate (mid-single-digit) growth in their beverage segment going forward.

Commenting on the India tea business, the company said, "prioritizing long-term competitiveness resulted in robust volume growth during the quarter. Calibrated price increases undertaken across the portfolio have helped partially offset significant increase in tea cost."

India business

Consolidated revenue (branded products) from the India business, which includes wide range of food and beverage products, including popular brands like Tata Tea, Tetley, Tata Salt, and Tata Sampann, rose 19 per cent YOY to Rs 2833.7 crore in the quarter. Quarterly revenue from the beverages business grew 9% (excluding Organic India), while foods business revenue grew 31% (+11% excluding Capital Foods), the company said.

Meanwhile, the ready to drink (RTD) business which includes brands like Tata Gluco+ and Tata Tea fusion, recorded a volume growth of 14%. However, the management flagged impact to its RTD brand Tata Gluco+ from a new entrant. Earlier this year, conglomerate Reliance Industries entered the rehydration market with the launch of RasKik Gluco Energy, a drink combining electrolytes, glucose, and real lemon juice priced at Rs 10

"We have matched that price, we will make sure we build momentum back into the business. As we re-indexed retailer margin, that had an impact on revenue," he said. RTD business saw revenue 2 per cent in the quarter.

Meanwhile, Tata Starbucks added 16 net new stores during the quarter and entered four new cities in Q3. The total store count is 473 as of December 2024, in 74 cities.

Outlook

The company expects full impact of price hikes taken during the quarter, to play out in the next quarter.

"We will continue to pursue on volume growth, committed to take any other pricing opportunity there are in the market," D’Souza added.