Tata Consumer’s stock experienced a notable decline, dropping as much as 4% in early trading due to concerns surrounding profit margins. The company reported an EBITDA margin of 13.5% for Q4, reflecting a decrease of 256 basis points year-over-year. While tea volumes in India grew by 2%, slightly falling short of expectations, salt volumes increased by 5%, aligning with forecasts. Despite these fluctuations, revenue from the ‘Ready-to-Drink (RTD)’ category saw a 10% year-on-year increase, contributing positively to the overall performance. Many analysts, however, maintain a Buy rating, anticipating a recovery in margins.

Analyst Insights on Tata Consumer’s Future

Motilal Oswal predicts a rebound in profit margins for Tata Consumer’s beverage sector, driven by recent price increases in tea and salt, along with a stabilization of input costs. They noted “early signs of improved tea crop yields this harvest season,” which could further enhance performance. The international segment is also projected to sustain strong operating results.

• Buy Rating Reiterated: Motilal Oswal reaffirmed their Buy recommendation, setting a target price of Rs 1,360 per share, indicating a potential upside of nearly 20% from current trading levels.

Nuvama Adjusts Earnings Projections

On the other hand, Nuvama has made slight adjustments to its earnings forecasts, lowering the FY26 and FY27 EPS estimates by just over 1%. Nevertheless, they continue to recommend buying the stock, now with a revised target price of Rs 1,335 per share, up from an earlier estimate of Rs 1,255.

According to Nuvama, the impressive revenue growth in the food sector, combined with a 17% increase in the beverage segment, reflects effective pricing strategies and strong performance from NourishCo. They expect mid-single-digit growth in tea and salt volumes in the upcoming quarters, alongside a 30% revenue growth target for the Capital Foods and Organic business.

• Product Launches: The company introduced 41 new products this quarter, with e-commerce and quick commerce channels contributing 14% to total revenue.

Management’s Perspective on Margin Pressures

Tata Consumer’s management is optimistic that recent tea price hikes will alleviate margin pressures in the near future. They noted that tea price adjustments have covered 40% of costs in Q4 and 30% for FY25.

Moving forward, the company aims to reclaim market share through volume growth, forecasting mid-single-digit volume increases in both tea and salt for FY26.

Impact of U.S. Tariffs on Tata Consumer

Management also addressed concerns regarding potential U.S. tariffs, clarifying that since coffee is not produced domestically, India is likely to benefit if the U.S. implements proposed import tariffs. They do not foresee significant competitive impacts, although the full ramifications of tariffs have yet to materialize.

NourishCo generates approximately 60-65% of its revenue from regions like Andhra Pradesh and Eastern India. The current infrastructure, comprising 40 plants, provides substantial growth potential, with future capital expenditures contingent upon a significant increase in demand.

In summary, while Tata Consumer faces some challenges, analysts remain optimistic about its growth trajectory, bolstered by strategic pricing and robust product offerings.