Tata Consumer Products' stock experienced a sharp decline of 9.3% to ₹991.25 per share on the NSE during Monday's intraday trading. The plunge came after the company reported disappointing margin growth in its Q2 FY24-25 earnings, raising concerns among investors about its future performance. The results highlighted weak profit growth, casting a shadow over its share market investment appeal.
Profit and margin growth remain subdued
In the second quarter of FY25, Tata Consumer Products recorded a marginal 1% year-on-year increase in group net profit, amounting to ₹367 crore. Earnings before interest, tax, depreciation, and amortisation (EBITDA) reached ₹629 crore. However, EBITDA margins saw a slight contraction of 30 basis points to 14.9% compared to the same quarter last year.
This lacklustre margin growth has raised eyebrows among analysts and investors alike, as it signals challenges in the company’s cost management and profitability.
Revenue boosted by recent acquisitions
Despite the struggles on the profit and margin fronts, Tata Consumer Products’ revenue grew by 13% year-on-year to ₹4,214 crore. Recent acquisitions, including Organic India and Capital Foods primarily drove this growth. Without these acquisitions, however, the revenue increase would have been a more modest 5%. The acquisitions have added momentum to the company’s sales, but underlying growth remains a concern as core segments show mixed results.
Mixed performance across business segments
In India, the company's beverages segment saw a 3% revenue growth, which drops to a 4% decline when excluding the impact of Organic India. This indicates that demand remains soft in some categories. The coffee business stood out positively, with a robust 29% growth during the quarter. The India foods segment also showed promising results, with revenue rising by over 28%, or 9%, excluding Capital Foods.
Key growth drivers included a 26% increase in the value-added salt portfolio, supported by record rock salt volumes, and continued strong performance from the Tata Sampann portfolio.
Tata Sampann maintained a 26% growth rate for the quarter, reflecting the brand's growing traction in the market. Sunil D'Souza, the managing director and CEO, highlighted the company's gains in the salt business, as well as the steady performance of Tata Sampann and Tata Soulful. However, the tea business struggled, affected by overall market trends.
Strong growth in new channels and international markets
Tata Consumer Products saw significant progress in emerging channels. Its e-commerce platform achieved 51% growth, while modern trade expanded by 17%. The company is also exploring growth avenues in food services/HoReCa and pharmacy channels, with pilot programmes currently underway.
Internationally, revenue rose by 7%, or 5%, in constant currency terms, reflecting strong performance in the UK and benefits from previous structural improvements. The international operations saw better profitability, helping balance the company's overall results.
Stock movement reflects market sentiment
At 09:58 AM, Tata Consumer Products' stock was trading 9.17% lower at ₹993 per share, underperforming the NSE's Nifty 50, which was down 0.4% at 24,753.90. The sharp stock decline underscores investor concerns over the company's ability to deliver sustainable profit and margin growth.
The recent results indicate that while acquisitions have bolstered revenue, challenges persist in Tata Consumer Products' core business, especially concerning profitability and margins. The weak quarterly performance serves as a reminder for investors to remain cautious when considering share market investment in the company.
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