Tata Consumer Q3 preview: Revenue growth seen weak, but higher margin to aid net profit

After increasing prices over the last couple of quarters, the FMCG sector likely took a pause in Q3FY24.

Tata Consumer Ltd is expected to report single-digit revenue growth in Q3FY24 due to weak volumes and value-growth in its tea business during the quarter. However, the company is likely to see a robust growth in net profit, aided by a healthy margin expansion, according to brokerage analyst reports.

Tata Consumer is due to announce its Q3FY24 results on February 7.

The FMCG major’s fiscal third quarter revenue is likely to rise up to 7.4 percent on-year to Rs 3,731 crore, while the net profit will likely grow 25.6 percent on-year to Rs 343 crore in October-December quarter, according to brokerage estimates.

Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) margin is set to expand 160 basis points on-year to 14.7 percent in Q3FY24. Sequentially, EBITDA margin is estimated to rise 27 basis points.

The company's domestic tea business is estimated to grow at 2.5 percent in volumes, while 4.5 percent in value during the quarter, according to Kotak Institutional Equities. Tata Consumer’s India foods business and NourishCo business are expected to expand 15 percent and 35 percent on-year respectively.

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FMCG sector in Q3

Rural recovery has been under pressure in the quarter ending December as higher inflation and flash floods in a few states have impacted demand, said Prabhudas Lilladher. It also said that the festival season-led demand was weaker than expected in the same period. However, the urban demand has remained resilient in the October-December quarter, and has shown signs of improvement, said the brokerage firm.

After increasing prices over the last couple of quarters, the FMCG sector likely took a pause in Q3FY24, and even price cuts in a few cases, said Yes Securities. FMCG companies took price cuts in order to pass on the benefit of lower commodity inflation to consumers and compete with smaller regional players.

The brokerage firm also said that with comfortable gross margins levels and a weak pick up in demand, companies will maintain the high intensity of advertising spends in the October-to-December quarter as well.

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