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ICICI Securities Report
Tea prices were up 63% in Q2 FY21, YoY. While it is likely to impact margins of Tata Consumer Products Ltd. in near term, we expect it to be transitory.
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Importantly, our ‘cost of cup' analysis indicates that price inflation for a cup of tea is just 13% (as sugar prices are flat and milk prices have declined).
Also, note that Tata Consumer Products improved its market share (approximately 23% now) and gross margins (approximately 37%) over FY2009-2020.
It has demonstrated the ability to pass on commodity inflation with a lag of one to two quarters.
Furthermore, sharp inflation in input prices also hurts the unorganized companies (35% of total market) creating market share gain opportunities for Tata Consumer Products.
It has strong brands in all four sub-segments (economy, popular, sub-premium and premium) of organized tea market.
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