Weak operational performance drags Tata Consumer Products shares down 2%

Tata Consumer Products: Tata Consumer Products Q3 profit jumps 26% to Rs 364 crore despite weak operating margin, revenue grows 8%. The FMCG company has recorded a 26% year-on-year growth in consolidated profit at Rs 364.4 crore for quarter ended December FY23 despite weak operating margin, led by tax write-back, exceptional income and higher other income. Revenue for the quarter grew by 8.3% YoY to Rs 3,475 crore with India business growth of 8% and international business rising 4%, however, EBITDA fell 1.7% to Rs 454 crore and margin declined by 130 bps to 13.1% for the quarter.

Shares of Tata Consumer Products fell on February 3, a day after the company reported weak operational performance for the quarter ended December.

Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) for the company declined 2 percent on year to Rs 458 crore for the quarter. EBITDA margin also witnessed an erosion of 100 basis points from the year ago period in Oct-Dec and came at 13.1 percent.

One basis point is one-hundredth of a percentage point.

The weakness in operational performance for Tata Consumer was on account of demand headwinds for its premium tea business in some key markets and input cost inflation in its salt segment.

Consequently, shares of Tata Consumer Products traded 2.10 percent lower at Rs 721.65 on the National Stock Exchange at 1.21 pm. The stock has tested an intraday low of Rs 720.45 today.

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Despite the weak operational numbers, the consumer goods company managed to post a consolidated net profit of Rs 396.45 crore for the quarter ended December, up 28 percent year-on-year thanks to higher other income.

Revenue from operations also registered an 8 percent on year jump and came at Rs 3,475 crore, aided by strong volume growth and market share gains in its core salt segment.

The company's bottomline as well as topline came in higher than the Street's expectations. As per a poll of brokerages conducted by Moneycontrol, the company was set to report post-tax profit of Rs 265 crore on a revenue of Rs 3,454 crore.

Brokerage view

Brokerage firm ICICI Securities expects recovery in all three core
segments (Tea, Salt and International beverages) of Tata Consumer Products in the upcoming financial year on account of the company's pricing action.

"Our long term positive view for the consumer goods company remains intact, though we reckon there will likely be opportunities in stock volatility for long-term investors," the brokerage house said in a note.

ICICI Securities has a Buy rating for the stock with a target price of Rs 900 which signifies an upside potential of over 22 percent from Thursday's closing price.

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