Tata Consumer Products' June-quarter earnings largely met Street expectations, but brokerage commentary suggests the bigger takeaway was the company's ability to sustain double-digit growth despite persistent cost pressures.
While analysts remained constructive on the stock, the common message was that margins will be the key monitorable over the coming quarters as inflation in tea and other commodities continues to weigh on costs.
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Brokerages Decode
Citi
- Maintained Buy and cut the target price to Rs 1,400 from Rs 1,450.
- Said strong growth momentum continues.
- Highlighted incremental pricing, strong execution in emerging channels, continued innovation and the scaling-up of growth businesses as key positives.
- Said margins remain the key monitorable.
HSBC
- Maintained Buy and hiked the target price to Rs 1,390 from Rs 1,380.
- Said Q1FY27 delivered strong top-line growth despite a sequential margin miss in the India business due to cost inflation.
- Noted that margin guidance has been maintained.
- Reduced FY27-FY29 earnings estimates by 2-3% to reflect the first-quarter margin miss.
Nomura
- Maintained Buy and hiked the target price to Rs 1,475 from Rs 1,450.
- Said growth businesses continue to outshine and are changing the company's business mix.
- Described the June-quarter performance as broadly in line with consensus estimates.
- Highlighted management's guidance of double-digit sales growth and 50-75 basis points operating margin expansion for FY27.
- Said the core tea and salt business continues to hold up despite headwinds, with management guiding for 5-7% volume growth and 2-4% pricing growth.
Morgan Stanley
- Maintained Overweight with a target price of Rs 1,351.
- Said continued top-line growth momentum remains a positive.
- Expects tea inflation of around 7-10%, with management likely to take further price hikes to protect margins.
- Sees near-term margin improvement through pricing, while US business margin recovery and India cost savings could support the company's medium-term EBITDA margin aspiration of 17-20%.
Tata Consumer's Q1 Performance
Tata Consumer reported a 27.8% year-on-year rise in consolidated net profit to Rs 427 crore, broadly in line with analyst estimates of Rs 432 crore.
Revenue from operations increased 11.9% to Rs 5,349 crore, while EBITDA rose 19.3% to Rs 724 crore. EBITDA margin expanded to 13.53% from 12.7% a year ago, although EBITDA came in marginally below consensus expectations.
The company said operating performance benefited from lower tea costs in India, which partly offset elevated coffee prices in the US. However, inflationary pressures across key raw materials and higher investments behind brands continued to weigh on costs.
Despite these headwinds, Tata Consumer delivered double-digit growth in both revenue and profit, with management maintaining its FY27 guidance for double-digit sales growth and operating margin expansion.
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