Tata Consumer Products Shares Fall 9%, Top Nifty 50 Losers: Here's Why
Shares of Tata Consumer Products Ltd. witnessed a significant 9% decline on Monday, October 21, making them the biggest losers on the Nifty 50 index
Shares of Tata Consumer Products Ltd. witnessed a significant 9% decline on Monday, October 21, making them the biggest losers on the Nifty 50 index. The drop comes after the company's September quarter results, which were reported after market hours on Friday. This marks the stock's steepest decline since February 2022.
Key Reasons Behind the Decline:
-
India Beverage Business Weak Performance: Tata Consumer’s India beverage segment reported a 3% revenue decline year-on-year (YoY), while volumes fell 4%. This decline is attributed to soft demand and a 20 basis points decrease in market share for its tea business.
-
Decline in Ready-to-Drink Business:
The company's ready-to-drink (RTD) business saw an 11% YoY revenue drop, influenced by unfavourable weather conditions and increased competition in pricing. -
Growth Business Misses Analyst Expectations:
Tata Consumer’s growth business reported a 15% organic growth during the quarter, falling short of the 30% growth anticipated by analysts. -
Sluggish Performance in Foods Business:
While the Foods business posted a 9% organic revenue growth, volumes grew by just 1% YoY, indicating slower momentum. -
International Business Shows Promise:
A bright spot in Tata Consumer’s performance was its international business, where margins improved to 15%, up from 10.1% in the same quarter last year. -
Acquisitions Perform Well:
Two of Tata Consumer's key acquisitions, Capital Foods and Organic India, grew by 25% and 45%, respectively, during the quarter, showing strong sequential performance.
Analyst Reactions:
-
ICICI Securities downgraded Tata Consumer from a “Buy” to an “Add” rating, lowering the price target to ₹1,225 from ₹1,385. The brokerage has revised its earnings estimates for FY25 and FY26 down by 7-8%, citing inflationary pressures.
-
Goldman Sachs remains "neutral" with a price target of ₹1,050. The firm has cut its EPS estimates by 10% to 14%, reflecting cautious sentiment.
-
Morgan Stanley retains an "Overweight" stance, though it has cut its price target to ₹1,273 from ₹1,344. The brokerage highlighted that the company's focus on market share over margins will be crucial, particularly with softening urban demand and slow rural recovery.
Current Stock Performance:
As of Monday's close, Tata Consumer Products shares were down 9.2% at ₹992.3, turning negative for the year 2024. Despite this, a majority of analysts remain optimistic on the stock, with 22 of 29 analysts maintaining a "buy" rating, six advising "hold," and nine recommending "sell."
Conclusion:
Tata Consumer's weak performance in key segments like beverages and ready-to-drink products has weighed on the stock, despite positive growth in its international business and recent acquisitions. Analysts have adjusted their forecasts, citing challenges like inflation and soft demand, but the long-term outlook for the company remains mixed, with a strong focus on improving margins and market share.
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