Tata Consumer Sees Another Painful Quarter For Tea Business Before Margin Recovery In Q3

Tata Consumer Products Ltd. expects its branded tea margins to bounce back by the December quarter, aided by lower auction prices and improved pass-through of cost inflation.

In the June quarter, the Tata Group firm's branded tea business revenue grew 12%. But margins were down by 10 percentage points as the company couldn't entirely pass the cost burden to consumers.

"We’ve passed about 70% to the consumer, so 30% is still out there, and that has impacted our margins by 10 percentage points," TCPL managing director and chief executive officer Sunil D’Souza told analysts during post-earnings call on Wednesday. "I think we'll see probably one more quarter of pain, and then by Q3 we should get back to the historical margins."

The tea business operates within a gross margin range of 34-37%.

Currently, tea prices at auction centres are about 13% lower year-on-year, D'souza said. "Last year, the price rise was 30%, but this year we expect it to be in mid to high single digits, and therefore tea margins to expand."