Tata Consumer Products shares plunge over 7% today. Here's why

Tata Consumer Products share price: At 1:27 pm, the stock was trading at Rs 1015.85 on the Bombay Stock Exchange (BSE), down by 7.2%, as investors reacted to its muted performance.

In Short

• Tata Consumer shares plunge over 7% as a reaction to weak Q2 earnings
• Q2 net profit remains unchanged at Rs 359 crore YoY
• Revenue grows 13%, but India beverages segment sees volume decline

Shares of Tata Consumer Products Ltd (TCPL) took a sharp fall, plunging over 7% during intraday trading on Monday. The decline in share price came a day after the company reported lacklustre earnings for the July-September quarter.

At 1:27 pm, the stock was trading at Rs 1015.85 on the Bombay Stock Exchange (BSE), down by 7.2%, as investors reacted to its muted performance.

TCPL, which owns popular brands like Tetley Tea and Ching's Secret, reported a net profit of Rs 359 crore for Q2 FY25, unchanged from the same period last year.

Revenue grew by 13% year-on-year (YoY) to Rs 4,214 crore, up from Rs 3,734 crore in Q2 FY24. Despite the revenue uptick, the Street was disappointed, especially as earnings failed to meet expectations, leading to a sharp sell-off in TCPL shares.

The company cited erratic weather conditions in India, which impacted production for both tea and salt, resulting in inflationary pressures on input costs. As a result, its India beverages segment had a tough quarter, with a 3% revenue decline and a 4% drop in volume due to soft demand. Raw tea prices surged, pushing up costs.

However, the company has implemented staggered price increases across its tea brands to counter this inflation.

While the tea business struggled, Tata Consumer's coffee segment showed strong growth, registering a 29% increase in sales during the quarter. Additionally, the company’s recent acquisitions performed better than expected, contributing positively to the overall revenue.

TARGET PRICE HIT

International brokerages were quick to respond to the subdued results. Jefferies maintained its 'hold' rating on Tata Consumer but lowered its target price to Rs 1,170 from Rs 1,190.

The brokerage highlighted that the India business, particularly the tea segment, underperformed, with both revenue and margins missing estimates. Jefferies pointed to a 23% drop in like-for-like EBITDA growth due to inflation in input costs, especially in the tea business.

Morgan Stanley also cut its target price from Rs 1,344 to Rs 1,273 while maintaining its 'overweight' rating. It noted that the domestic business witnessed a broad miss, with organic revenue growth at just 5% and a volume decline in tea.

The brokerage highlighted that while non-branded and international segments performed well, Tata Consumer needs to focus on maintaining market share in India as rural demand gradually recovers and urban demand softens.

With the stock taking a hit following its underwhelming Q2 performance, Tata Consumer has a tricky task to manage rising inflationary pressures and stabilising its core segments. However, its strong coffee business and the positive impact of acquisitions could provide a cushion as it navigates these challenges.

For investors, the near-term outlook remains cautious, with brokerages advising close monitoring of the company’s strategy to overcome the pressures impacting its India business.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)