Tata Consumer to lean on pricing as tea inflation, West Asia disruptions keep costs elevated

An unusually harsh summer, weather-led pressure on tea production and cost inflation linked to the Iran crisis are shaping Tata Consumer Products ' near-term strategy, with the company indicating that it will continue taking calibrated price increases to protect margins while remaining cautious on commodity trends.

Speaking during the company's analyst call, managing director and CEO Sunil D'Souza said the company was already seeing inflation in tea and other commodities, even as it delivered a strong first quarter. Consolidated revenue rose 12% year on year to ₹5,349 crore, EBITDA grew 19% with margins expanding 70 basis points to 13.6%, while net profit increased 29% to ₹427 crore.

The company said India beverages faced an unusual combination of challenges during the quarter. "Unusually strong summer, along with a minor issue of LPG shortages impacting small restaurants and street side vendors, including hot tea shops in the south, did impact the business," D'Souza said, even as coffee volumes continued to grow 24%. Tata Salt also implemented calibrated price increases in June, with the MRP of its flagship orange pack increasing from ₹30 to ₹32.

Inflation and pricing remain in focus

Questions from analysts also centred on whether the ongoing Iran and West Asia tensions, which have pushed up prices of dry fruits, spices and edible oils, would hurt margins.

D'Souza made it clear that the company intends to pass on inflation, albeit with some delay.

"If there is inflation, it will pass on. There might be a bit of a time lag between when it hits us and when we pass it on. But broadly, we would pass on the inflation and try to ensure that we maintain margins," he said, adding that Tata Sampann's margins had improved during the quarter despite commodity pressures.

The company, however, ruled out changing its broader growth aspirations. It continues to target around 30% growth in its portfolio of newer businesses, including Tata Sampann, Capital Foods and Organic India.

Tea remains another area of uncertainty.

D'Souza said the company has stopped trying to forecast tea prices because weather conditions continue to change rapidly. Extended summer conditions and inadequate rainfall in parts of southern and northern India have pushed tea inflation to around 7% to 10% so far, although the peak crop season has only just begun.

"We're seeing 7% to 10% inflation. We're planning for a 7% to 10%. If that happens, then we will look at judicious pricing to make sure margins are maintained," he said, adding that the company had already taken minor price increases in June but would watch procurement trends over the next 15 to 30 days before taking further action.

Group CFO Ashish Goenka said margin pressure during the quarter stemmed from a combination of raw material inflation, staggered price increases that created a timing mismatch, higher advertising and promotional spending and foreign exchange losses on some hedges.

"Pricing went in on 1st June... there has been some timing mismatch, which is also impacting margins," he said, adding that further pricing interventions would remain an option if commodity costs stayed elevated.

Despite these headwinds, the company maintained its outlook for double digit revenue growth, supported by its faster growing businesses such as Tata Sampann and ready-to-drink beverages. D'Souza said the company also expects to deliver 50 to 70 basis points of margin expansion for the full year, while cautioning that quarterly comparisons should be viewed in the context of the seasonal nature of the food and beverage business.