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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.
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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