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Sub: Transcripts of Conference Call pertaining to Financial Results
We enclose herewith a copy of the Transcripts of Conference Call held on Thursday, May 5, 2022, in respect
of the Financial results for the quarter and year ended March 31, 2022.
The same can also be viewed at: https://www.tataconsumer.com/investors/financial-information/call-
transcripts
This is for your information and records.
Yours faithfully, For Tata Consumer Products Limited
Neelabja Chakrabarty Company Secretary
Encl: as above
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“Tata Consumer Products Limited Q4 FY2022 Results Conference Call”
May 05, 2022
ANALYST:
MR. ANIRUDDHA JOSHI - ICICI SECURITIES LIMITED
MANAGEMENT: MS. NIDHI VERMA - HEAD - INVESTOR RELATIONS & CORPORATE COMMUNICATIONS – TATA CONSUMER PRODUCTS LIMITED MR. SUNIL D’SOUZA – CHIEF EXECUTIVE OFFICER & MANAGING DIRECTOR - TATA CONSUMER PRODUCTS LIMITED MR. L KRISHNAKUMAR - EXECUTIVE DIRECTOR & - TATA GROUP CHIEF FINANCIAL OFFICER CONSUMER PRODUCTS LIMITED MR. AJIT KRISHNAKUMAR - CHIEF OPERATING OFFICER - TATA CONSUMER PRODUCTS LIMITED
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Tata Consumer Products Limited May 05, 2022
Moderator:
Ladies and gentlemen, good day and welcome to the Tata Consumer Products Limited
Results Conference Call hosted by ICICI Securities Limited. As a reminder all participant
lines will be in the listen-only mode and there will be an opportunity for you to ask
questions after the presentation concludes. Should you need assistance during the
conference call please signal an operator by pressing “*” then “0” on your touchtone phone.
Please note that this conference is being recorded. I now hand the conference over to Mr.
Aniruddha Joshi from ICICI Securities Limited. Thank you and over to you Sir!
Aniruddha Joshi:
Thanks Faizan. On behalf of ICICI Securities we welcome you all to Q4 FY2022 and
FY2022 results conference call of Tata Consumer Products Limited. Now I hand over the
call to Ms. Nidhi Verma - Head of Investor Relations & Corporate Communications.
Thanks and over to you Nidhi!
Nidhi Verma:
Thanks Aniruddha and welcome everyone. I hope you had the time to go through our
results that we announced last evening. For today’s call I am joined by Sunil D’Souza -
Managing Director & CEO; L Krishnakumar - Executive Director & Group CFO; and Ajit
Krishnakumar – COO. So what we will do is we will spend about 15 minutes or so walking
you through some of the key highlights of the quarter and the year and then we will spend
about 45 minutes to answer your questions, so without further ado over to you Sunil!
Sunil D’Souza:
Thanks Nidhi. I will go straight to slide #6, which is the executive summary. During the
quarter, our consolidated revenue grew 6% like-for-like full year therefore came in at a 9%
net of all the exits that were done. On a two-year CAGR basis this translates to a 15%
revenue growth like-for-like business. EBITDA for the quarter was up 45% bringing the
full year to 11%, on a two-year CAGR it is up by 16%. The India business for the year grew
by 13% with 3% volume and 10% revenue for India beverages, 8% volume and 19%
revenue for India foods. International grew by 1% cycling an elevated base where the last
year we had grown by 12%. Now the critical thing is with the tea inflation is tapering off,
India beverage margin saw significant improvement, just as a perspective margins moved
by close to 1500 basis points for the quarter-on-quarter versus same quarter of last year.
Now we invested a significant amount of that into the new businesses and still expanded the
consolidated EBITDA which was up by nearly 400 basis points despite significant inflation
in the food business and despite 29% increase in A&P for the India business. With that said
I will just urge you and I walk you through the details later, but India foods business is two
parts one is salt and one is all the growth businesses. On the salt we maintain margins and
we have driven the growth in the new businesses. Overall our growth businesses are up by
52% for the year. We had strong free cash flow conversion , FCFC to EBITDA came in at
100%, market share was up, India beverages up to 100 basis points, India foods up by 400
and we continue to make progress against our strategic priorities. We acquired Tata
SmartFoodz, strengthened our S&D infrastructure, and tripled our innovation from where
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we started three years back, invested in new drivers of growth and of late with the Tata
Coffee and international restructuring, a new global simplification plan to drive efficiencies
and significant synergies.
Next we go to slide #8. If I talk about Q4 2022 India beverages 3% volume, negative 1%
percent revenue as prices became normalized, India foods like I said there are two parts of
the story, salt had steady margin, little bit of pressure, but overall for the year we grew 8%
but for the quarter it was a bit soft as we took pricing, but Sampann has continued to grow
and revenue up by 19%. US Coffee volume up 3%, we had international tea volume up 5%
overall 3175 Crores of revenue. For the full year beverages volume up by 3%, revenue up
10%, India foods volume up 8%, and revenue up 19%. US Coffee negative on volume
because in the early part of the year international overall we were cycling the pantry loading
of COVID, same thing you will see in international tea negative 3, but now the volumes are
starting to come back. Tata Coffee including Vietnam full year 3% volume, 11% revenue
and overall 12425 Crores of revenue. In terms of Q4 revenue growth of 6% like-to-like,
EBITDA growth of 45%, PBT up 54%, group net profit 222% and before exceptional 89%,
and now we are sitting with 2486 Crores of cash which incidentally despite the investment
in Tata SmartFoodz, the recapitalization of APPL, investment into taking control of the
TRIL JV and Starbucks investment is still higher than where we were last year.
On full year basis revenue up 7% at 12425 Crores, EBITDA up 11%, PBT is up 12%, so
you will see a perfect flow through from revenue down to PBT, group net profit up by 9 and
before exceptional is up by 12%, EPS up by 9% year-on-year. If I talk about strategic
priorities the six pillars that we have strengthened accelerating core, driving digital and
innovation, unlocking costs and synergies, creating a future ready organization, new
opportunities and embedding sustainability and we made progress against all of them. We
had made a commitment of 1.3 million outlets by March we are up there. Going forward by
next year we are saying 1.5 because now the focus is on rest of urban and rural and
therefore wholesale and while we are powering our brand expect a 2.5 plus multiplier to get
us to 4 million outlets which we had committed by September 2023. We will continue to
raise numeric reach if you take the average for the year beverages up by 18%, salt by 15%.
We are completely digitized in our chain and apart from appointing distributors now we are
focused on rural and semi-urban because that is where the numeric opportunity for us lies.
Great progress in alternate channels, modern trade is now up 30% year-on-year crossing
1000 Crores and e-commerce we are the market leader and the good news is despite
COVID waning and consumers going back to their old styles of shopping we are still 7.3%
e-commerce as a percentage of sales.
We upped A&P we have spent 22% higher this year on A&P in our India business versus
last year focused on the premium brands of Tata Tea premium, focused on the South with
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Chakra as well as coffee which has trade dividends with coffee growing 44%, and tea
overall 100 basis points share increase.
In foods , (salt )market share is up by 400 basis points, focus on premium salt which has
given us results and you see later we grew by 26% there. Tata Soulfull once we focused on
the No Maida Choco and the affordable pack is off to a fantastic start. We have launched
solar salt, Tata Shuddh in the south gained market share out there and in our strongholds in
North and the East we are seeing some look-alikes pop-up so we are going on a consumer
education to show them that every salt is not Tata Salt.
Premiumization starting to show results, Sampann up by 28%, value-added salt up 26%,
Tata coffee up by 45% and our new launches to expand our premium brands like Tata Tea
Gold Care is now 4.5% of Tata Tea Gold.
I would not drain this slide but for overall a two-year CAGR of 19% in the beverages, 18%
in food, international up by 6%, so significant improvement over the last two years.
Innovation continues to be on a roll, we started off with 0.9% as a percentage of sales, and
we have exited the year at 2.7% which is significant improvement. A lot of work in the last
two years on creating an agile and efficient supply chain, we have roughly 11000 drop-off
points service to 38 centers across India, integration has yielded great results, we have got
more than a 25% reduction in secondary trade because of integrating all our businesses and
logistics, completely digitized back-end as well as supply chain. Focus on sustainability
with 24% of our energy for the supply chain coming out of renewables and we have a rinse
and repeat model now with integration and we have integrated Soulfull as well as Tata
SmartFoodz within three months of transaction close.
We have announced our plan for Tata Coffee merger as well as simplification of the
international business, which will yield us operational efficiencies for management, legal
and administrative costs, faster decision making and execution, taking out the minorities
and creating a single listed entity, capturing the full value of the group, creating focused
business verticals for extraction and a dedicated plantation vertical and unlocking
significant potential synergies going forward.
We are enroute to becoming a large FMCG company so our new engines of growth are
firing- NourishCo, Sampann, Tata Soulfull, and Tata Q have shown a 52% revenue growth
for FY2022.
Inorganic acquisitions making progress, 100-day integration, rebranding of Soulfull to Tata
Soulfull, collaborating with outside world with IIMR for developing new products and as I
said the Rs.10 No Maida Choco is offto what I would term as a rocket start. NourishCo we
have broken even on Himalayan for the first time ever since we acquired the brand, great
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progress once we have rebranded Tata Water Plus to Tata Copper growing more than three
times in FY2022, distribution is up by 80% which should yield us result now when we see
the first full summer for NourishCo under TCPL, expanded geography which again will
bear results starting this year, we have expanded capacity all ready for growth, all lines up
by 50% and driving innovation which is up to 10% of sales. Focused on sustainability
whether it is with the pledged friendly products in the US, Tata Coffee winning awards in
health and safety, Tata Tea focusing on social awareness for water and driving
sustainability at Starbucks.
Just a quick snapshot on the different businesses if I just go to slide #31. India beverages
3% volume, 6% revenue, 100 bps market share gain. The big news here is EBIT margin is
up by 400 bps year-on-year in FY2022. For the quarter alone gross margin was up by 1500
basis points. India revenue grew by 6% lapping a 32% growth in FY2021 and just for
perspective for Q4 we were lapping at almost 55%, 60% growth and we still delivered a
decent performance.
India foods 8% volume, 19% revenue, more importantly a 400 bps market share gain. We
are now touching the 38 per share for total salt. EBIT margin did decline but here again I
would emphasize there is two parts of this business one is salt where we are maintaining
margin and the second thing is our growth businesses where they are investing for growth.
NourishCo 86% revenue touching 350 Crores in revenue, significant growth and more
importantly I think we are well geared for driving growth for this year.
Tata Coffee plantations revenue growth was soft negative 3%, revenue growth was 11%.
There could be a point where everyone says why was your volume growth low this quarter
just in perspective Tata Coffee we have been seeing significant shipping issues and
therefore you would have seen a bump in Q3 as we made sure that we did not hold any
inventory in any of the plants and shipped out volume as and when it happened but despite
that FY2022 overall a 19% revenue growth.
Tata Starbucks this is probably the second most normalized quarter that we have seen
despite the pickup of Omicron in the beginning of the quarter, but now we are in 26 cities
268 stores, 96% of our stores are reopened, the only ones which are not are the ones either
in office complexes or in IT Parks. Good news is 18% same store sales growth versus pre-
COVID period and we are seeing great traction and remain very confident about this
business going forward. We did open 23 stores for Starbucks in a single quarter which was
the record bringing the whole year to a 50 stores that just provides the base of what the team
can execute.
International businesses, UK we more or less maintained our share in everyday black at a
19 plus. Teapigs which is a focus for growth up by 7% for FY2022 while overall revenue
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growth as I mentioned was cycling a high of COVID was down by negative 2%. The US
coffee bags share of 4.3%, flat coffee growth despite taking significant pricing, so there was
a fine balance between margin, volume and revenue out here. Tea growth negative 8%
again cycling COVID of last year. Canada maintaining market share at a 27%, 28%,
specialty has dipped significantly and therefore negative 9% and they also cycled the high
COVID peak and negative 7% revenue growth. Financial performance LK very quickly.
L Krishnakumar:
Thanks Sunil and good morning everyone. On the standalone basis we grew revenue for the
quarter by 5% and this is driven both by volume growth in the tea business as well as some
pricing in the salt. In terms of EBITDA we saw 102% drop largely a function of recovery of
tea margins to a normalized level coupled with some investment behind the growth
initiatives.
Moving on to the consolidated performance the increase was 5%, 6% on a constant basis
driven by a similar rate of growth in all businesses and in terms of margin the growth was
higher at 45% driven largely by the improvement in margins in the India business. In the
international business also we saw slightly improved margins because of a strong
performance in the last quarter by the coffee business and lower rate of A&P and other
expenses. Non-branded business slightly lower margins impacted by lower realization in the
tea plantations.
On a standalone basis the financials for the quarter, the standalone reflects basically the
India beverages, India foods and a little bit of exports into the overseas markets. We have
seen a growth rate of 5% and improved margin, improved margins is a function two things.
We talked about the improving operating margins in tea, but also if you look at the results
you will see there is a higher investment behind brands. We saw this growth in margins is
not withstanding a significant increase in the A&P spend. PAT higher at 152% reflecting
largely the improved operating performance but also a lower rate of exceptional items. For
the full year we grew 11% with a PAT growth of 43%. On the consolidated basis we saw
revenues up by 5% for the quarter, a strong margin improvement of 4% driven by the India
business as well as improving margins in the international business, exceptional items were
lower, PAT at 289 versus 133 Crores and group net profit 239 versus 74 Crores. I just want
to make one comment on the share of profit on JV and associates, you will see that the
number is flat for the full year but slightly lower for the quarter reflects that there are two
significant parts to this, one is the Tata Starbucks business and the second is the plantation
businesses that we have. Tata Starbucks had an improved performance related to the
previous year, but the plantation businesses were impacted by lower crop and lower tea
prices. So this is an impact of both and the other point I want to call out because some
analysts have still been asking questions that when we have the plantation interest in North
India we need to remember that north India plantations do not have crops for most of last
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quarter, so the loss in plantations tends to be higher in the last quarter that is a phenomenon
some analysts have not fully come to grips with, so I thought I will make a mention of it.
Moving on to segmental results and we have changed the segmental presentation to talk of.
So we have presented on a like-to-like basis here we have changed the presentation to India
and International business. The reason being we already told that in the last analyst call that
we are managing the India business on an integrated basis and we often allocate capital
between businesses and subgroups of businesses, but equally important is that the
organization structure is a single structure with a common sales, supply and other functions,
so it is only natural that we combine the businesses, we will continue to give revenue and
appropriate margin guidance going forward. So if you look at the profile 69% of the
revenues come from the India business and 31% from International businesses, more or less
a similar profile in terms of the segment results with the International business improving
profitability over the last few quarters and few years. So we are happy with the performance
overall on the margin improvements in the International business, India business the
margins are a reflection of improved performance in the tea business but also higher
investment behind some of the growth initiatives, which over the medium-term will also
deliver improved margin. So overall as a company our guidance still continues to be
improving margins in the medium-term.
Sunil D’ Souza:
Just to give you a summary to conclude and what we are seeing going forward. The good
news is the recovery following the third wave has been swift, but the geopolitical situation
is evolving and exaggerating inflationary pressure. The good news for us is the three big
commodities for us the coffee, tea and salt we have seen the price in the past and hopefully
they are range bound right now. We are not too exposed to the new emerging inflation
because of the geopolitical situation in wheat, oil, palm oil and sunflower oil for example,
but that said overall inflation and its impact on consumer behavior is going to be a key
monitorable. In the International space again we have been taking rapid price increases in
line with the inflation that we have seen, but the in-home consumption is also tapering off
as well as the impact of broad-based inflation needs to be monitored and we need to be agile
in moving pricing around. In terms of business we think we have delivered competitive
growth in our core businesses, we have gained 100 bps in tea, 400 bps in salt and we aim to
continue that going forward. India packaged beverages have seen a return to normalized
margins. In terms of growth we are cautiously optimistic given the macro environment. Just
as a perspective for January and March, Nielsen does report close to a 5% volume growth
coming back in India which is good news and we will continue to focus on execution to
drive growth. For the year, the food business has seen good volume growth both salt and
Sampann, for this coming quarter we are lapping a high quarter and therefore we need to be
mindful about that. The cost pressure however will continue for a while and we have got to
be agile moving around. In out of home businesses both Starbucks and NourishCo have
delivered a fantastic performance despite the two waves of the pandemic. Given that we are
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seeing this pandemic slowly receding hopefully therefore we expect continued momentum
in the businesses if there are no new surprises. Our new businesses our Soulfull, TSFL are
on track and we expect to drive growth. TSFL we could expect to see significant
momentum end of Q2 early Q3 as the Exports India ramps up. In the international business
the focus will be on executing against plans especially three brand strategy and gaining
share in fruits and herbals and specialty and like I said we will be taking pricing actions as
appropriate. Given the inflation and investment required for some of the new businesses we
will continue to optimize margins at the consolidated level, balancing margin, and market
share and volume momentum. With that I hand it back to Nidhi.
Nidhi Verma:
Thank you Sunil. Moderator we can go back to the Q&A queue now to take some
questions.
Moderator:
Thank you very much. We will now begin the question and answer session. The first
question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Abneesh Roy:
Thanks Sir. My first question is on e-commerce market share in tea almost 41.9% market
share, which is almost double of your national market share, so my questions here are
which e-commerce platform this data is based on and which is the agency which is doing it
and is it possible to replicate this kind of a success in your other categories and is BigBasket
acquisition by the group also already helping in a significant manner here and what really
brings this kind of a gain in market share, I just checked on the pricing bit I did see that
your pricing is a bit lower than the other large player so apart from pricing and say buying
the banners and marketing what has really bring the market share?
Sunil D’Souza:
Let me respond to you on the pricing question. I think you will see pricing go up and down
in the e-commerce space in line with, I think right now everyone has got a summer sale is
going for example, I think we are running a program around that, but you will see the pluses
and minuses happening all the time number one. Number two is the high market share in e-
commerce only points to the strength of the brands that we have and assuming that this
brand is available at all places, the kind of market share that we could hope to have in the
general market, so that just points out to more importantly our distribution ramps up, so I
would read it that way. Number three it is the overall market share I think it covers Amazon
and a few other platforms and it is not only limited to BigBasket so this is not a one pack
listing and I will qualify that if I am not mistaken and Nidhi will confirm this to you this is
basis syndicated data coming out from the e-commerce but again just to highlight this
shows the strength of our brand and the ability to gain market share if they are evenly
distributed and that is the big focus. So even if I take offline number I am about 10% behind
on numeric versus my biggest competitor and 10% behind on market share, so just by
equating distribution I could get to close to leadership and that will continue to remain the
focus.
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Abneesh Roy:
One followup on tea business this is more in terms of raw material for FY2023 what is your
take given Russia a large importer that seems to be a bit difficult but on the other hand Sri
Lanka which is a large exporter is also not able to export, so are these two cancelling each
other, so you do not see the big inflation for India tea raw material FY2023?
Sunil D’Souza:
So I will just give you a slight bit of color on that one. In FY2021 the tea price has spiked
up because of the lockdowns and therefore the inability to harvest especially the first and
second flushes. FY2022 we thought it would normalize but then there were droughts in
Assam in the months of May and November and therefore the shortage on crop and that
kept the prices high, but that said the pricing came down significantly from where it was in
the same period a year ago. Right now it is operating broadly range bound so that is number
one. It broadly depends on the rainfall and the crop output going forward, right now if you
believe IMD being a good forecaster of 98%, 99% of long-term rainfall, we should see a
decent monsoon and therefore a decent crop and therefore pricing should be range bound if
not with a slight downward bias that is number one. Number two to answer your question
on Russia and Sri Lanka both the places remember it is an orthodox market and a slightly
higher quality orthodox, India is more of a CTC market and less on orthodox so while this
imbalance on demand and supply could cause some of the customers to shift to orthodox
from CTC but capacity is limited and the fact that we expect a slightly better crop this year
than last year should broadly hold if not to the slight downward bias on tea pricing.
Abneesh Roy:
My last question is on Himalayan and Tata Q, the Himalayan breakeven for the first time is
it sustainable and what led to it and in Tata Q you said number two brand in this category so
wanted to understand who is number one and how big is the total addressable market for
Tata Q?
Sunil D’Souza:
Himalayan, just similar to all the brands that we have I think we have got fantastic brands,
but this has simply not been available to consumers. As we are expanding distribution this
FYI think September 2020 is when we detached the Himalayan distribution from Varun
beverages and went on our own and that is when we started to see the traction and this is led
by distribution it is not led by pricing, it is not led by any other extraordinary effort, yes,
extraordinary efforts in terms of distribution, more accessibility and more offtake, so
therefore there is no reason to believe it is not sustainable, more importantly there is no
reason to believe it cannot continue to grow exponentially going forward so that is number
one. Number two, on Tata Q I think MTR is the market leader right now we are number two
but that said I think we have got a long way to go. The addressable market in India is not as
big as the export market so while we are rejigging our portfolio both from a product as well
as a marketing communication perspective for India I think the bigger focus is to make sure
that we are ready for the export markets with all approvals, etc. As I said I think you will
start seeing greater traction at the end of Q2 early Q3 as we get our export engine ramp up.
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Abneesh Roy:
Thanks Sir, that is all from my side. Thank you.
Moderator:
Thank you. Next question is from the line of Jaykumar Doshi from Kotak. Please go ahead.
Jaykumar Doshi:
Hi! Thanks for the opportunity. When I compare your India business tea segmental margins
with second half of FY2020 it appears to be higher both in percentage terms as well as per
unit basis and even though the prices when I look at commodity prices of the last couple of
quarters versus second half of FY2020 it is about 20%higher. So with 20% higher pricing
you managed the commodity prices, you managed to fully recover and perhaps exceed your
previous highs, is this sustainable or you think the competitive landscape would force you
to reduce the prices further and maybe margins may settle at a slightly lower level?
Sunil D’Souza:
Just to give you a perspective one of the fundamental assumptions in putting this company
together was that they have got a fantastic four-letter brand called Tata and sub brands
under it which are not getting leverage, therefore if we create a dedicated consumer entity
focus on execution against the brands we will get returns and that is exactly what you are
seeing. So just as a perspective our direct distribution earlier for beverages was about
500000 and numeric reach was about 2 million when we started off end of FY2020 which
you are talking about this is when Tata Consumer was formed. Right now we are about 1.3
million and our numeric reach is about 2.7, so we are seeing that expansion as we are
reaching more outlets directly there is an upside. Number two if you observe we have been
ramping up our investment behind brands- moving from a completely or overwhelmingly
push strategy to a more pull strategy therefore creating better brand power and therefore
better pricing power. We have narrowed the indices between us and competition
significantly and therefore taken up relative pricing that is the second piece of margin and
the third piece of margin is when you follow up with strategy you put a lot of money into
trade as you start taking some of that out we have redeployed it into brand and that is why
you are seeing the margins go up and I think we are at a fairly comfortable position right
now from a gross margin perspective on beverages and there is no reason to say we cannot
continue this if not improve on this slightly going forward.
Jaykumar Doshi:
That is helpful. Thank you. On the foods portfolio do you need further price increases in
salt to offset the inflationary headwinds, can you talk a little bit about what is the
incremental inflationary pressure if at all any between December quarter and now and what
would be the price increase that you may need to offset that?
Sunil D’Souza:
Just as a perspective there we have taken roughly Rs.4 price increase on Rs.21 so we moved
from 21 to 25 from July to April 1 the last price increase that we have taken is just now on
April 1. The reason for that is the inflationary headwinds are coming in the form of two
pieces number one is the fact that there were extended monsoons in Gujarat and therefore
lesser brine available to make salt and therefore brine prices went up and therefore cost of
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goods went up that is one piece. The second piece is to convert brine into salt you do need
energy and large amount of that energy is coal and large percentage of the coal that we use
is imported coal and with the coal prices and shipping prices going up you have seen a jump
of that. Now overall we have seen a significant jump in overall cost in Q2 and Q3. Q4 right
now there might be a small increase but it will not be as steep as what we saw in Q2 and Q3
and we have taken a price increase like I said in April 1 in a little bit of anticipation but we
will remain nimble to make sure that if needed we will make sure that we put pricing in
play to make sure we are maintaining margins, but the more important thing here I would
say is despite taking that pricing we are continuing to ramp up market share, we just
showed the power of the brand and the execution that the team is putting behind it. Overall
market share despite all that pricing that we have taken which is roughly 19% in a space of
nine months our market share for the year is still up by 400 basis points, but like I said we
need to stay close the only thing is there might be a 30, 45 day lag between cost going up
and us being able to take pricing.
Jaykumar Doshi:
Understood, thank you so much, that is it from my side.
Moderator:
Thank you. The next question is from the line of Vishal Gutka from PhillipCapital. Please
go ahead.
Vishal Gutka:
Thanks a lot for detailed presentation. Just on the salt distribution front is it possible to
accelerate the distribution network because direct reach is a very critical component for
driving sales of salt so I wanted to know because this year the increase is here in the region
of 15% so was it due to COVID led challenges that you are able to increase only by 15%
overall numerical distribution for salt business?
Sunil D’Souza:
So let me say I would say total numeric reach is the most important piece probably direct
being slightly higher for salt than for tea, but that said I think right now what we are seeing
is on the metros and Tier-1, Tier-2 towns we are fairly good on overall numeric reach, I
think our opportunity areas are more in rest of urban and rural and to get to rest of urban
and rural, yes, can we go direct why not I can move from 1.3 to 2 or whatever, but I think it
is more efficient for us to move to a decent number and I would say 1.5 broadly for FMCG
is a good it is not best in class yes it is a good number to target, but this year the focus will
be to get the multiplier of the wholesales that is where the focus is because one of the
commitments that we did make when we formed this company is that we will double our
total numeric reach by September 2023 which is 4 million, so mathematically if I go to a
1.5 million and get a 2.5 multiplier I will be close to that number to deliver the total
numeric reach which in turn will deliver us volume and market share.
Vishal Gutka:
Thank you.
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Moderator:
Thank you. The next question is from the line of Nikunj Gala from Sundaram AMC. Please
go ahead.
Nikunj Gala:
Good afternoon everyone. My question is with respect to India food business so India food
business except for salt in next three to five years if the company can ramp up to the kind of
goalcompany has desired what kind of a marginal ROCE level we are working with?
Sunil D’Souza:
Let me put it this way I said that Tata Consumer was formed to become a large FMCG
company. As step one we are becoming a large F&B company and if you look at the
opportunities for growth just from a field of play perspective there is more opportunity in
food than beverages therefore we do expect a significant ramp up in the food business. Now
important thing as we grow the businesses we have to remember there is a target long-term
stable margin and there is a margin in the interim while building out those businesses. So
we are very, very mindful about the businesses that we are getting into whether it is organic
or inorganic to make sure that the long-term margin profile of the business is accretive to
our current portfolio, but that said going forward you could see investments in businesses to
make sure that we are coming up the path to scale. So I would not hazard a specific number
to you but do expect a double-digit growth in the India food business with margins
continuing to improve as we move forward.
Nikunj Gala:
The question was like for example in the spices can we go up to what peers are doing the
margins or even at the aggregate level you believe the margins would be in line with what
company is delivering right now?
Sunil D’Souza:
Every category that we play in we aim to be in the top two or three players and the top two
or three players not only in terms of volume and market share but also in terms of margin,
there is no reason we cannot get to industry margins in any of the categories but that said
over a period of time. It will not be instantaneous because a) you have to build scale, second
you have to build a brand.
Nikunj Gala:
Second question with respect to the media article stating that the company is planning to get
into the home and personal care through acquisition led strategy I just wanted your thought
on that?
Sunil D’Souza:
I will repeat what I said is Tata Consumer was formed to fulfill the FMCG ambitions of the
Tata Group. As step one we have done a F&B company and moved from being just beyond
the tea and salt company so that is number one. Number two is if you go by the group
norms of simplify, synergize and scale for the last two years while we have been doing a bit
of scale up the focus has also been to simplify and synergize the businesses, the last
simplifying synergy being the Tata Coffee and the International restructuring. Now that we
are broadly done with the heavy lifting and there will be a continued focus on synergies for
example on cost, etc. Now you could see a traction on the scaling up perspective. I would
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not comment on speculative articles on which category we are getting into or which we are
not, all that I would say is any category that we get into we are very, very mindful about a)
the scale for that category, the margins in that category, the number of brands that play in
that category whether it is too fragmented, consolidated, what does the Tata brand name do,
what are the capabilities that we have that is number one. Number two, every category that
we will consider we will also look at is the best bang for the buck going organic or
inorganic. So we will become a large FMCG company, we will have scale, we will deliver
superior financial returns, but over a period of time.
Nikunj Gala:
Thank you for that comment. Just on that, is there any threshold ROCE you look at when
you consider any category or any product in that way or that is just a ballpark number you
work with that, that is a good ROCE to work with, to get into the category that was my last
question?
Sunil D’Souza:
I do not think we only look at ROCE when we enter into category. Just for example in
pulses ROCE is almost infinite right because there is no capital, we are using third party it
is just working capital and inventory that we are holding and we are selling it off. So ROCE
is not the only determinant. The determinant is the scale of the category, the margins in the
category, how accretive is it to our business, do we have the capabilities to synergize and
scale, for example getting into a Cold chain does not make sense for me right now maybe it
is later, but today no Cold chain products will be on the table since irrespective of the
ROCE or the margin because I do not have synergy, so there are multiple things that we
consider when we get into a category to make sure that ultimately as Tata Consumer we are
creating financial value.
Nikunj Gala:
Sure thank you. Thanks a lot. All the best.
Moderator:
Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go
ahead.
Percy Panthaki:
Hi! Sir, my first question is on costs. So when we had acquired the consumer business of
Tata Chemicals we had said that there are a lot of synergies not only on the topline which I
understand but also in terms of cost and we have realized a lot of those synergies I
remember you mentioned that there was one redundant layer of distribution which you
removed, etc., so what I want to understand is where we are in that journey of realizing cost
synergies from the merger, are we sort of 50% through that journey, are we 80% through
some kind of flavor you can give on that, and a sub question to that is apart from cost
synergies from the merger are there any other low hanging items in terms of sort of cost
rationalization which you can implement. See there will always be some cost rationalization
possibilities for any FMCG companies even after a century of existence and sort of good
management. I am not talking about those I am talking about something more obvious and
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something more sort of low hanging which you can extract over the next one or two years,
so these two sub questions are my first question.
Sunil D’Souza:
We had made an announcement of taking out between 100 to 150 Crores of synergies. Now
you are right, topline is a derived calculation, but costs are real, and we were presenting the
amount of cost till I think about September quarter if I’m not mistaken where we had almost
delivered that entire 100 and 150 Crores and it came in various pieces, it was a layer of
management system, it was layered in the supply chain with the super distributors and
C&FAs, it was with the beverages and foods operating as two separate units, it was at the
integrated structure, it was in procurement multiple pieces. So we have delivered that and
the proof of the fact apart from this just that you would have believed the management
when they say that they have delivered in the P&L itself. We have fueled significant
amount of new categories and invested behind those categories number one. Even in the
core business we have ramped up our A&P significantly while continuing to deliver
improved financial returns. All that is possible simply because we have been taking cost out
from the P&L, large part of that from the synergy. Just for example even in this presentation
I showed you the secondary freight per kilometer is down by more than 25% just because
we combine the salt and tea and that is a mathematical proven number that is on the table.
So synergy is almost completely delivered as committed, but as you rightly said it is not a
one stop per se. We will continue to look for synergies just for example right now we have
announced the Tata Coffee merger and the international restructuring there is significant
money on the table apart from the simplification, legal management teams, etc., there is
tangible value on the table which we will take out but that we will quantify once we finish
the entire exercise you could expect a significant number to come out that is number one.
Number two the example that this is a constant exercise and we will keep looking for it,
looking for opportunities is as we expand the Sampann portfolio for example we are
leveraging 3P manufacturers across the country and as we grow this business aggressively
we have to look at the footprint that we operate in because between freight and sourcing is
where there is a significant amount of money. So we have just finished an exercise which
relayers our entire or significantly changes parts of our footprint on sourcing and logistics
again with a significant bill in terms of synergies to be realized at the end of it. So it is an
ongoing exercise I would say 3% to 5% productivity on the cost angle will be a constant
endeavor for this company going forward.
Percy Panthaki:
Second question on Starbucks and you have done very well in terms of store expansion and
city expansion footprint, etc., I just wanted to also spend a little time on the margins so what
my understanding of this business having studied other QSR formats is that typically
beverages versus food, beverages has an edge in terms of better gross margins and secondly
also given where Starbucks price points are which are definitely at a premium to other sort
of chains in the industry I would have thought that margins would be better especially now
since your 250 stores plus so the scale is not a big issue anymore. My expectation is that for
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a format like this pre Ind AS 116 and pre-royalty EBITDA margin should be close to 20%
and I do not think we are there yet so do you think that is a fair target first of all and if yes
what is required for us to go to that level?
Sunil D’Souza:
I would not dispute your target of the 20% margin and I would say we are quite close to that
we are not way off right and you have to remember the margins is a function of also the
total cost that we are bearing and the throughput that we are getting through. During
COVID and closure we have had significant issues in terms of the traffic in the stores and
therefore the drop in revenue while the costs have not changed significantly we have
managed to bring down cost a bit, but they have not changed significantly, the revenues
dropped and therefore the net margins have come down on the EBITDA level. That said
right now we are seeing them come I would say between 15% to 20% and therefore we do
not see an issue in ramping up going forward.
L Krishnakumar:
Just one another point you need to bear in mind is what you are saying without commenting
specifically but overall profit numbers will be different in a steady state than that when you
are expanding. We have opened as Sunil said over 25 stores in the last quarter so we are not
in steady state yet so please remember that.
Percy Panthaki:
Sure. Just a clarification on this, this 15%, 20% number which you spoke about is that a
number which is pre-Ind AS 116 or it is under the 116 reporting standard?
L Krishnakumar:
Let us have a conversation offline.
Sunil D’Souza:
Just to give you some more color on that revenue grew by 76% and EBITDA grew by
160% so just the throughput or the traffic in the stores itself moves up the EBITDA in a big
way and as I said on the out of home piece I think for NourishCo and Starbucks the last
quarter was almost normal apart from the Omicron hiccups that happened. So you could
expect to see these pieces ramping up as we go forward.
Percy Panthaki:
That is all from me. Thanks and all the best.
Moderator:
Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal.
Please go ahead.
Sumant Kumar:
Hi! Sir. My question is regarding tea margin. In the month of April we have seen a CTC
leaf prices have go up by 12% to 16% and you talked about the tea price likely to correct so
if it is not going to correct and can you talk about how things are going to be for the price
increase side and margin side for the tea business in the next couple of quarters?
Sunil D’Souza:
Let me comment in two different ways. Number one is as tea prices go up or down we will
modify our pricing in the market to make sure we are more or less maintaining margins
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while maintaining competitive stances and volume momentum so that is number one.
Number two just as a perspective in the month of April if I am not mistaken while there
were some small upticks in the North Indian tea, the South Indian tea saw a downward
pressure so that is number two, and number three April is probably the wrong month for
making a conclusion on tea pricing because the first flush happens about May and from
May onwards is when you could see the price movements going up or down, but broadly
like I said tea prices were range bound in the last quarter per se we will see some ups and
downs but not as significant as what we have seen in FY2021 and quite a large part of the
beginning of FY2022. If we have a normal crop this year you could see a downward
pressure on prices overall, but anything that moves up or down we will make sure that we
are moving our algorithm in line to make sure maintaining margin and maintaining
momentum.
Sumant Kumar:
Last question the other expense is higher in Q4 what is the key reason for that?
Sunil D’Souza:
Sorry.
Nidhi Verma:
Other expenses are higher in Q4.
L. Krishnakumar:
It is not only in Q4 but overall other expenses there are number of reasons .The first is the
fact that we are investing in infrastructure whether sales, digital as we expect. Second is
compared to the previous year there are new businesses which have come in like Soulfull,
like Tata Q, third reason is we are ramping up Sampann and other things and there is an
element of inflation which all of us have, so all these are contributors.
Sumant Kumar:
Thank you so much.
Moderator:
Thank you. The next question is from the line of Trilok from Dymon Asia. Please go ahead.
As there is no response from the current participant we will move on to the next question.
Nidhi Verma:
Moderator perhaps please go to the webcast now and take some questions from there.
Moderator:
Sure.
Nidhi Verma:
So there is a question from Alok Shah at Ambit. He is asking that distribution in tea and salt
has increased by 15% and 13% CAGR over FY2020 to 2022 , wanted to check how much
more distribution is yet to be covered and against this distribution expansion tea and salt
volume growth CAGR has been 7% and 9% over the same period which is lower than the
distribution expansion so is this understanding correct and how do they reconcile this?
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Sunil D’Souza:
I will answer this in two or three parts. As I mentioned our target in terms of numeric reach
Tata Consumer Products Limited May 05, 2022
is 4 million outlets we are at a 2.7 so we have got at least 50% more ground to cover and at
4 million outlets I think we will be in the top quartile of FMCG company that is the target
that is number one. Number two I do not think you can do a direct linkage with the
distribution expansion for the same time period because this takes time to build up and
number two as we are expanding distribution as I mentioned rest of urban and rural is the
opportunity where you would expect to see slightly lower volume/value throughput and
number three it is also a function of industry ups and downs while long-term the beverage
industry in India for example the tea industry has been growing between 5% and 7%
volume, we have seen significant softness in the beginning part of this year as I said at
January and March two months have come in at a 5% volume growth and the industry looks
to be coming back. I would not draw straight line correlation I would urge to go on the
hypothesis saying that a) if you are present in 4 million outlets, if you have got strong
brands and therefore share of handlers therefore you will be getting volume market share
and therefore a good bottomline at the end of it.
Nidhi Verma:
Thanks Sunil and he has another question perhaps LK can take this. ICDs have gone up
from 730 million to 4.99 billion can you share some more details on the same?
L Krishnakumar:
This is a deployment of surplus funds - we have preferred deposits with strong companies
for example HDFC is one company where we made deposits so they are not within the
group, when we get a better return than employing them in short-term mutual fund, so these
are examples of where we have placed it
Nidhi Verma:
The last question is what is the gross margin profile of NourishCo versus tea business?
Sunil D’ Souza:
So broadly the gross margin profile of NourishCo is in the ballpark of the tea business in
fact once we get our innovation engine fired up it should be slightly accretive to where the
tea business would be on a steady state. As I said the big opportunity in NourishCo is that
even after the expansion that we have done I think we still got about 45% to 50%
geography of the country to cover, NourishCo has not delivered to its full potential on the
bottomline simply because it has been hindered by the two waves of the second wave and
the Omicron which we have seen, I am keeping my fingers crossed that this is the first full
year in which they see a full summer and would have executed in all the expanded
geographies that they have operated in and therefore you should start seeing significant
traction on that business.
Nidhi Verma:
I think we can go back to the Q&A queue and perhaps we can extend the call by 10 minutes
so that we can address rest of the questions.
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Moderator:
The next question is from the line of Devika Jain from Ratnabali Investments. Please go
ahead.
Devika Jain:
Hi! I just wanted to understand what is the growth strategy for Sampann so I see Sampann
is one of the biggest growth drivers of the Indian business so I just wanted to understand
when in the bigger scheme of things what would your strategy be going forward on a long-
term basis?
Sunil D’Souza:
I can go on for about half a day on the Sampann growth strategy but to just give you in a
nutshell, Sampann is going to be the pantry brand for us and therefore all the categories that
we will enter with Sampann is pantry. So right now we have got spices, we have got pulses,
we have got besan, all of it are doing very well, Poha has grown more than 100%. Overall
Sampann has grown by more than 30%. Sampann the other categories have been identified
in which to enter we have just entered the dry fruit category which again is a high margin
but trust deficit category because there is no big brand operating there. Sampann I think the
critical case is to make sure a) we will get into the right categories, b) we build the brand on
which I think we have got a lot of work to do, c) expand distribution, and d) most
importantly once we get to a certain level of scale start leveraging procurement at the back
and lastly is start putting in value-added innovation as we go through to make sure we move
up the margin profile.
Devika Jain:
A little bit of guidance as to can we expect growth of more than 30% going forward?
Sunil D’Souza:
I would say you can expect very healthy growth across TCPL but Sampann should be
outpacing the TCPL growth number significantly.
Devika Jain:
Sure thank you that was helpful.
Moderator:
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Capital.
Please go ahead.
Shirish Pardeshi:
Hi! Sunil, Nidhi, LK good afternoon thanks for the opportunity. I have one question. In
reference of slide #13 where you have seen strategic priorities six pillars. I would like to see
in the context you said you are holding about 2500 Crores cash so the point what I wanted
to understand is explore new opportunities so what is it that you are looking, are you
looking for brand, channels, D2C or format that would be helpful and the sub question on
that we too acquire brands Soulfull and Tata foods, in the medium to long-term say three
years what is their expectation in terms of scale, distribution, profitability and maybe
revenue?
Sunil D’Souza:
Let me answer the first part of your question. The 2400 cash is kept ready and powder dry
to deploy in case we see opportunities I think the critical piece is creating value for Tata
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Consumers we are extremely mindful of the return ratios of the business but also we have
got to make sure that we fulfill the ambitions in terms of scale so every opportunity is
looked at from every multiple angle to make sure it is creating value. Soulfull for example
and that is a classic example that I can give you. Great brand in the geography which it was
operating and we thought we can scale it across the country they had a unique proposition
of millet which was a differentiated proposition from a consumer perspective, but also entry
barrier simply because they possess the technology to process millets very efficiently which
not many companies can. Number four they have brought in a great team we have leveraged
that by keeping the team separate and only integrating where TCPL will create value. So is
there a specific one piece that I can give you saying we would go deploy against brands or
we will deploy again D2C no, we look at every possible opportunity that is there, there is a
set of targets that we have which we go after but it has to create total value. As I said every
single acquisition has to make sense on strategic filters as I mentioned but also more
importantly the financial filters for us to make sure that it is value accretive.
Shirish Pardeshi:
On the two acquired brands long-term target say three to five years where do you think this
business can go?
Sunil D’Souza:
So it is to multiply the topline and the bottomline multifold for all the businesses. Soulfull is
already on its way like I said it had a slow start just because of two things one is we had to
integrate that business and number two is I think our team took a little bit of more time to
understand the category because we have never operated in that place earlier, but now that
we have got it, now it is into triple digit growth for the last couple of months and we expect
to continue a very, very strong momentum going forward apart from the fact that we will
expand portfolio. On Tata SmartFoodz I did mention earlier that we have work process
going on to, we have already integrated the business, but from a portfolio angle and more
importantly the big bang for the buck will be the export market making sure we have the
brand, the product portfolio and the regulatory approvals to start ramping up that business.
Shirish Pardeshi:
Let me take a little more, I have tested both the brands and I have seen, I am a big fan of
processed food while if I give anecdotal evidence McCain came in India with potato
variants for long time but they have not been able to scale up of course I am not saying the
time is different that today time is very different, in a medium to long-term to reach over 10
billion brand do you think you will require four years, five years, six years?
Sunil D’Souza:
I would not give you a specific number one and I would not try to draw parallels because I
can give you the name of one of the big competitors in India who did try to get into salt as
well as Atta, but there are other players like we have succeeded in salt and someone else has
succeeded in Atta. So just because “A” player tried a category and did not succeed does not
mean others can succeed or fail. Every company has to evaluate what its strengths are,
where are they playing to, make sure we are differentiating, make sure we have the ability
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to execute and then go for it. As I said Tata Consumers we have got lofty ambitions but as I
just said just now I think we have just about seen 10 minutes of a two-hour movie so we
have got a long movie to go stay tuned.
Shirish Pardeshi:
Sure thank you and all the best Sunil.
Nidhi Verma:
Moderator we will just take one last question now.
Moderator:
The next question is from the line of Bharat Sheth from Quest Investment Advisors, Please
go ahead.
Bharat Sheth:
Hi! Sunil congratulations on good set of numbers. You have answered, on the portfolio
expansion of Soulfull, but on NourishCo how do we really look and second this ready to eat
so it will be among the whole, full kind of a day right now we have Soulfull which is for
morning breakfast so how do we expand that portfolio on the hygienic or nutri side and
NourishCo. And export engine that you said so how do we see this will be distribution
model, will be there for export?
Sunil D’Souza:
If I understood the question right I think NourishCo we have got a huge opportunity for
growth. Just for example NourishCo grew by close to 90% for the year and this is without
having a normal year I think the product portfolio that they have is Tata Gluco Plus, Tata
Water Plus, Himalayan, we just introduced Fruski, we have just launched the Tata ORS we
just launched the Jelly Variant, I think just expanding in the beverage spaces where we can
create a differentiation and value for the consumer and executing against it I think we are in
a good place on NourishCo. On Soulfull I think the core differentiator is millet. Soulfull
was brought in to specifically cater to the demand spaces of breakfast, snacking and mini
meals and therefore the portfolio that you will see coming out of Soulfull and I think the
first product should come out by new product, new, new product would start coming out by
end of this month early next month, it is in the same space the big differentiator being millet
and superior products per se. On Tata SmartFoodz like I said there is work in process to
make sure that we have got a portfolio which appeals to the Indian consumer as well as for
the International market appeals to the International consumer. In International we will play
both the ethnic as well as the world food aisle in the mainline supermarkets.
Bharat Sheth:
Any thought process on the revenue from these three business contribution on the topline
and EBITDA in over a three to five years timeframe?
Sunil D’Souza:
So both on topline as well as EBITDA we would expect it to be incremental and
significantly I would not hazard a guess to give you a number in the future, but just to give
you past performance the boilerplate here is past performance can be a guarantee of future
performance and we have grown this year. The growth businesses have grown 52% our
endeavor will be to continue to maintain that momentum going forward.
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Bharat Sheth:
Thank you and all the best.
Moderator:
Thank you. Ladies and gentlemen that was the last question for today. I would now like to
hand the conference over to Ms. Nidhi Verma for closing comments.
Nidhi Verma:
Thank you. Thanks ICICI for hosting us. On behalf of the management thanks everyone for
joining us. If you do have any remaining questions, please get in touch with me.
Moderator:
Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited that concludes this
conference call. Thank you for joining us and you may now disconnect your lines.
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