Earnings Call Transcript Analysis Report #
Financial Performance #
Key Metrics: #
- Consolidated Revenue: Grew 17% YoY to INR 4,444 crores. Organic growth (excluding acquisitions) was 9%.
- India Beverages Revenue: Grew 16% (9% organic). Tea volume grew 7%. Coffee grew 28%.
- India Foods Revenue: Grew 31% (11% organic). Salt volume grew 1%. Sampann grew 23%.
- International Business Revenue: Grew 8% (4% in constant currency).
- Non-Branded Business Revenue: Grew 9%.
- Consolidated EBITDA: Flat YoY, significantly impacted by India tea margin pressure.
- Profit Before Tax (PBT) (Before Exceptional): Declined 20% YoY, impacted by EBITDA performance and higher interest costs (though improving).
- Group Net Profit: INR 287 crores (down 6% YoY reported, INR 282 crores mentioned by CFO).
- Margins: Consolidated EBITDA margin flat YoY. Significant margin pressure in India Tea due to ~25-30% higher tea costs YoY. International business saw strong profitability growth (35% YoY). Non-branded EBIT margin expanded 180 bps YoY.
Comparison: #
- Strong top-line growth momentum continued, especially on an organic basis (9%) compared to previous quarters.
- India tea volume growth (7%) was a multi-quarter high.
- EBITDA performance was weaker compared to the strong growth seen in previous quarters (e.g., 11% YTD growth), primarily due to the Q3 intensification of tea cost pressures.
- Management noted that excluding the tea cost/price impact, underlying EBITDA margins would have expanded by 75-100 bps.
- Quote: “Assuming India Tea margins were at the Q3 FY'24 level, our overall EBITDA margin for the quarter would have expanded at least 75 to 100 bps.”
Guidance/Forecasts: #
- No explicit revision to overall guidance.
- Expectation that tea margin pressure will continue for the next 1-2 quarters (Q4 FY'25, Q1 FY'26) until the new crop arrives, although Q3 FY'25 likely represented the peak impact delta.
- Quote: “We do expect this pressure to continue till probably end of Q1, early Q2 until the new flush comes in…” and “I think Q3 would be the peak of the pressure [on margins].”
- Expect acceleration in Capital Foods and Organic India growth in Q4 FY'25.
- Quote: “Capital Foods and Organic continue to build momentum, and we expect Q4 to have a very good acceleration from here on.”
Growth/Decline Areas: #
- Growth: Strong volume growth in India Tea (7%), strong value growth in India Salt despite price hikes, Sampann (23%), Coffee (28%), RTD volumes (14% for Qtr, 39% exit Dec), International profitability, E-commerce (59%), Non-Branded revenue.
- Decline/Pressure: India Tea margins, Consolidated EBITDA (flat), PBT, Net Profit. RTD value (-2% despite volume growth due to pricing adjustments).
Strategic Initiatives & Business Updates #
Major Strategic Announcements: #
- Refinement of strategic priorities: Added “growth businesses” (Sampann, Soulfull) to the “strengthen and accelerate core” pillar. Added explicit focus on “Execution” including cost takeouts.
- Integration of Capital Foods and Organic India ongoing, focus shifting from stabilization to accelerating growth via innovation and channel expansion (food service, pharma).
New Products/Services/Markets: #
- Innovation examples: Tata Tea Premium ‘care’ variant, Tetley green tea powder, RTD coffee, new Jelly flavors, Dry Fruits (INR 100 cr ARR), Cold Pressed Oils (INR 70 cr ARR), Quick Cook Kabuli Chana, Ching’s Schezwan Fried Rice Masala & Veg Hakka Noodles.
- Channel Expansion: Pilots completed for Food Services and Pharma channels, now scaling up rapidly (Food Services to 16 cities, Pharma to 40 cities planned).
- Starbucks: Opened 16 stores, entered 4 new cities. Total 473 stores in 74 cities. Launched initiatives driving affordability and traffic.
Operational Changes: #
- Distribution Expansion: 10% higher distributors, 30% higher DSRs, expanded rural reach (super stockists/sub-distributors). Direct reach > 1.8 million outlets.
- System Implementation: Front-end DMS and SFA fully implemented across networks. Auto-replenishment systems fully operational.
- Split Route Implementation: Largely completed by end Q3, but ramp-up and effectiveness build-up is ongoing.
- Quote: “split route implementation, I think by the time we got implementing it was end of the quarter… it will only build up from here.”
- International Sales Structure (US): Shifted from third-party brokers to in-house team for managing key accounts (Walmart, Kroger, etc.).
Ongoing/Completed Projects: #
- Acquisition Integration: Capital Foods and Organic India stabilization largely done, now focusing on growth acceleration.
- Sustainability: Improved DJSI (65 vs 56) and Sustainalytics scores, maintained MSCI ‘A’ rating. Implemented sustainable ‘Andromeda’ packs in Canada.
Market & Competitive Landscape #
Industry Trends: #
- Significant tea cost inflation (~25-30% YoY).
- Quote: “tea prices, which are about 25% to 30% higher than last year.”
- Extremely high coffee prices (“40, 50-year high”).
- Quote: “Coffee… 40, 50-year high in terms of prices.”
- Shift towards e-commerce (15% of TCPL sales, higher than Modern Trade at 14%).
- Urban market showing strength when Modern Trade and E-commerce are included.
- Quote: “If I add back modern trade… and e-commerce… then my urban growth also is close to double digits.”
- Growth in Fruit & Herbal / Specialty Tea in the UK.
Competitive Positioning: #
- Maintaining competitiveness in Tea despite cost pressure, focusing on volume and long-term share over short-term margin.
- Quote: “remain focused on building long-term competitiveness.” and “will remain competitive. I will drive volume and value growth, yes?”
- Strong market share gains in Salt (+110 bps MAT).
- Corrected competitiveness issues in RTD via pricing/margin adjustments, leading to volume recovery.
- Quote: “Ready-to-drink business, we had issues with competitiveness last quarter, which we have corrected, and it delivered double-digit volume growth.”
- #1 Tea player in Canada, #2 in UK. Maintaining #1 position in India e-commerce for tea.
- Partnership with PepsiCo (Kurkure) for Ching’s Schezwan Chutney sampling/co-branding to grow the category.
- Quote: “by partnering with Kurkure, we’ve got the Schezwan Chutney flavor with the Ching’s bottle on the pack…”
Market Challenges/Opportunities: #
- Challenges: High tea/coffee costs impacting margins, competitive intensity in RTD, potential demand softness due to high commodity prices (esp. coffee), managing acquisition integration smoothly.
- Opportunities: Gaining share from unorganized/local players in Tea due to cost pressure, leveraging expanded distribution network, scaling up growth platforms (Sampann, Soulfull, RTD, acquisitions), significant runway for Capital Foods/Organic India, driving growth in Food Service/Pharma channels, premiumization (value-added salt, specialty tea), K-Cups in the US.
Market Share Comments: #
- Salt: +110 bps MAT gain.
- Tea: “minor movement,” Nielsen data shows narrowing gap in GT, stable in MT, #1 in e-commerce (not included in Nielsen total). Management implies share gain given 7% volume growth vs likely lower industry growth.
- Quote: “I absolutely think so [opportunity to gain share from local players]. Because, Abneesh, I don’t think industry has grown 7% volume right?”
- UK: #2 overall tea player, Fruit & Herbal share at 10%.
- Canada: #1 overall tea player (~27% share).
- US: Market share started trending up in the last 2 months of the quarter.
Risk Factors & Challenges #
Acknowledged Concerns: #
- Significant India Tea margin pressure due to high costs and only partial (~40%) price pass-through.
- Quote: “probably compensated for about 40% of the tea price increase. The 60% is still out there.”
- Uncertainty around future tea and coffee prices.
- Quote: “If you can tell me where coffee prices are going to go, I can promise to tell you the margins.”
- Competitive actions in the RTD