Tata Consumer Products, a stalwart in the Indian consumer goods market, experienced a significant setback this week, with shares plummeting by 9.3% to a concerning Rs 991.25. This drop isn’t merely a typical bad day on the stock market—it’s a stark revelation of the underlying strategic errors potentially hampering the company’s growth.
In Q2 FY25, Tata Consumer Products reported a mere 1% year-on-year growth in net profits, totaling Rs 367 crore. On the surface, this seems like progress, but when adjusted for inflation, the growth is negligible. The company’s EBITDA stood at Rs 629 crore, with margins shrinking by 30 basis points to 14.9%. This indicates a struggle in converting increased revenue into actual profitability.
The recent 13% revenue rise might look impressive, but it largely depends on the acquisitions of Organic India and Capital Foods. Strip away these additions, and the organic growth rate dwindles to just 5%—far from compelling.
Segment-wise Troubles: A Closer Look Reveals Worrying Trends
The Indian beverages segment, excluding the contributions from Organic India, witnessed a 4% decline, underscoring serious issues in core operations. Similarly, the foods segment in India shows a 28% increase, but without Capital Foods, this growth falls sharply to 9%.
Is the Company’s Strategy Built on Quicksand?
Sunil D’Souza, CEO of Tata Consumer, maintains a positive outlook, highlighting market share gains in the salt business and the growth of brands like Tata Sampann and Tata Soulful. However, this optimism does little to mask the stagnation plaguing their crucial tea segment, impacted by adverse market trends.
The company boasts of “synergy benefits” and expansion into “future-focused channels” such as e-commerce, which surged by 51%, and modern trade, which rose by 17%. Yet, these figures might merely distract from the fundamental issues at play.
Internationally, Tata Consumer reports a 7% revenue growth. However, adjusting for constant currency terms, the growth is only 5%, hinting that favorable exchange rates played a significant role, rather than strategic business acumen.
A Strategic Misfire: Overreliance on Acquisitions Over Innovation
This week’s market response should act as a clarion call for the company. Tata Consumer’s aggressive growth strategy, heavily reliant on acquisitions rather than fostering organic growth and innovation, may seem expansive but potentially leads to instability. The firm’s ongoing diversification into sectors like food services and pharmacies risks diluting its core business focus, possibly transforming the company into a sprawling, vulnerable empire.
While the narrative here may seem critical, it reflects the stark realities facing Tata Consumer Products. The company might be constructing an empire, but is it merely a fragile house of cards, susceptible to collapse with the slightest pressure? This week’s stock performance may just be the initial sign of structural weaknesses, highlighting an urgent need for Tata to revisit its foundational strategies.
That’s scary