On Monday, October 21, shares of Tata Consumer Products Ltd. dropped by 9%, making them the biggest losers on the Nifty 50 index. This decline followed the company’s September quarter results, which were released after market hours on Friday. It was the largest drop since February 2022, and here are some reasons for the fall:
- The revenue from Tata Consumer's India beverage business fell by 3% compared to last year, with a 4% decrease in sales volume due to low demand. The company also lost 20 basis points in tea market share.
- The ready-to-drink segment saw an 11% revenue drop year-on-year, affected by bad weather and strong competition.
- Although Tata Consumer’s growth business grew by 15% during the quarter, analysts had expected a 30% increase.
- In the Foods division, organic revenue rose by 9%, but volumes only grew by 1%.
- Management noted that the tea business was affected by overall weak market trends, but they are starting to see benefits from their acquisitions of Capital Foods and Organic India.
- On a positive note, Tata Consumer's international business saw margins increase from 10.1% to 15% compared to the same quarter last year.
- The recent acquisitions of Capital Foods and Organic India showed significant growth, with increases of 25% and 45% respectively during the quarter.
ICICI Securities has downgraded Tata Consumer Products' shares from "Buy" to "Add," lowering the price target from ₹1,385 to ₹1,225.
A brokerage has noted that due to high inflation, it has lowered its earnings estimates for Tata Consumer Products for the years 2025 and 2026 by 7% to 8%.
Goldman Sachs has a "neutral" rating on the stock and has reduced its price target to ₹1,050, along with cutting its earnings per share estimates by 10% to 14%.
On the other hand, Morgan Stanley still sees Tata Consumer as a good investment and has given it an "Overweight" rating, but has lowered its price target from ₹1,344 to ₹1,273. They believe focusing on market share rather than margins is crucial for Tata Consumer, especially since demand is slowing down in urban areas while rural demand is slowly improving.
Among the 29 analysts who follow Tata Consumer Products, 22 recommend buying the stock, six suggest holding it, and nine advise selling it.
Currently, shares of Tata Consumer Products are down 9.2%, trading at ₹992.3, making it the biggest loser on the Nifty 50 index. After Monday’s drop, the stock is now negative for the year 2024.
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