Tata Consumer growth businesses accelerate, supporting FY27 margin expansion outlook

Investment View and Q1FY27 Performance

ICICI Direct Research retained its BUY recommendation on Tata Consumer Products, highlighting accelerating growth in the company's higher-margin food and beverage businesses. The company is transforming from a commodities-led tea and coffee business into a higher-margin food and beverage company.

Tata Consumer Products reported consolidated Q1FY27 revenue of Rs 5,348.9 crore, up 11.9 per cent year on year, supported by 13 per cent volume growth in the India business. EBITDA increased 19.3 per cent year on year to Rs 724.1 crore, while EBITDA margin expanded 84 basis points to 13.5 per cent. Gross margin improved 257 basis points to 42.7 per cent, aided by favourable tea prices. Adjusted PAT rose 26 per cent year on year to Rs 468.4 crore, supported by operating performance and higher other income. Sequentially, revenue declined 1.6 per cent and EBITDA declined 8.6 per cent.

Growth Businesses Drive Mix Improvement

Revenue from Tata Consumer's Growth Businesses rose 47 per cent year on year to Rs 1,314 crore in Q1FY27. The portfolio's share of the India business increased to 36 per cent from 28 per cent in Q1FY26, exceeding management's indicated 30 per cent range.

Tata Sampann, which accounts for about 44 per cent of Growth Businesses revenue, grew 58 per cent. Its core pulses, grains and spices portfolio increased 30 per cent, while dry fruits and cold-pressed oils doubled. Ready-to-Drink beverages grew 41 per cent, including 35 per cent volume growth, aided by extended summer demand. Capital Foods revenue grew 40 per cent to Rs 232 crore, while Organic India grew 27 per cent to Rs 118 crore.

ICICI Direct expects Growth Businesses to sustain strong double-digit growth and support margins. Capital Foods and Organic Foods generate gross margins of 49 per cent, compared with the consolidated gross margin of about 43 per cent.

Management's Growth Priorities

• Growth Businesses are expected to grow 30 per cent in the medium term, supported by innovation, advertising, dedicated sales teams and wider distribution.
• Capital Foods is expected to grow 25-30 per cent.
• RTD capacity additions are being accelerated to meet demand.

Core Portfolio and Input-Cost Environment

Tata Salt delivered 7 per cent volume-led revenue growth, with value-added salt volume increasing 13 per cent. Management implemented calibrated price increases to address input-cost inflation, and ICICI Direct expects Tata Salt to grow 5-7 per cent in the near term.

India tea and coffee revenue declined 4 per cent despite 2 per cent volume growth, as an extended summer affected the category and lower tea prices were passed through to consumers. Domestic raw tea inflation was 7-10 per cent. Management has raised prices across key brands and may take further action if inflation persists.

International Business and Tata Starbucks

International revenue increased 16 per cent year on year, or 3 per cent in constant currency. The US business grew 7 per cent in constant currency as coffee prices normalised, while unusually strong summer conditions affected the UK and Canada.

Lower coffee prices reduced unbranded business revenue by 10 per cent to Rs 498 crore. Management expects the largely pass-through nature of this business to limit the profitability impact, with proactive hedging helping to mitigate volatility.

Tata Starbucks revenue grew 11 per cent and the business opened four stores, taking the total store count to 498 in Q1FY27.

Earnings Outlook and Valuation

ICICI Direct expects consolidated EBITDA margin to expand by 50-75 basis points in FY27, driven by coffee-price normalisation, favourable mix and premiumisation. The broker broadly retained its FY27E and FY28E estimates.

Key Risks

• Sustained raw-tea inflation.
• Competition from regional tea and coffee brands.
• Significant inflation in domestic tea or international coffee prices.
• Slow scale-up of recent acquisitions.