'Remain Confident Of Getting Margins Back', Says Tata Cons' Sunil D'Souza After Mixed Q1 Performance

Yeah. So before I get into this quarter specific, as you rightly said, we had a double-digit top line, 10% growth, which is what we've always guided for. EBITA was negative 8% and I'll come to that. Group net profit was up by 15% and we're sitting on 400 crores of cash. The EBIT was negative primarily because if I take it for the same quarter last year, we were down by 250 bps. Now out of the 250 bps, 160 bps is accounted for by the tea cost. Last year tea prices went up by roughly 30% and we've been able to pass on to the consumer only 70% of it because in various pockets or segments to remain competitive we did not move prices. That said, what we are seeing this year and last year, the reason why the tea prices went up is because there were roughly three droughts in the year and that impacted the total tea crop which was down by around 5% and the tea prices shot up. This year all forecasts point to a normal crop and we're already seeing that the last few auctions have been down by about 13 to 15% in prices versus the same period last year. So we do expect probably the up 30% will be down 20% and therefore the margins will come back. Market shares are strong. We've delivered volume growth in tea and overall a 12% topline in tea. So as tea prices drop we do see margins coming back. That's number one. Number two was the impact of coffee. As coffee prices have dropped we're carrying slightly higher price inventory, but that also will stabilize and as soon as coffee prices stabilize, the coffee margins unbranded coffee will go back to where it was two years back. So therefore for us, the critical piece is that as long as we know that these are the specific pieces pressuring margins and there is a line of sight in the next probably one if not two quarters for it to come back, we remain confident of getting margins back.

Yeah. So most of the heavy lifting of the price increases happened between I would say Q2 to Q4 of last year. Q1 of this year marginal changes. In fact it was a mixed bag. There were some increases, there are some decreases because as we see, tea is not one quality. There are different qualities of teas which go into different blends and prices move differently. Whatever we are seeing in the auctions we are starting to translate. So we've taken some up, we've taken some down. Broadly, I would say minimal net movement for this quarter itself.

So we've always guided for our growth businesses contributing to 30% of our topline and growing at 30%. Now this quarter it was 28% contribution but grew only at 7%, and that's for two or three very specific reasons. Samp did grow 27% so that is moving on a very strong footing. Ready-to-drink beverages we reindexed pricing in Q2 of last year, end of Q1 Q2 of last year, therefore we are cycling higher prices from last year. We did deliver volume increase, it was plus 3%, but total value was down 13% because we corrected prices and the plus 3% should have been far higher if it was not for the unseasonal rainfall. Now Q2 we expect to be normal weather and if so between Q2 and Q3 we should come to a 30% trajectory. Capital Foods and Organic India which were our acquisitions — Organic India still was a 30% plus; Capital Foods was the one which was slightly lower for a couple of reasons: we had a bunch of issues in exports and imports. I would say exports because of the supply chain issues internationally with the geopolitical issues around the Middle East. Imports — there are certain ingredients which we import for various food products which we started to face issues in imports and we had to rejig the formulation. So that's number two. Number three was we had capacity issues especially as we started to ramp up noodles. That is more or less now behind us and we've started to move on a different trajectory. And lastly, in some specific distributors, we right-sized inventories to make sure that we are on a firm footing. So as you rightly said, these are one-offs and between Q2 and Q3 you'll start seeing the trajectories come back in line with expectations.