Food inflation a 'short-term blip', will focus on volume growth: TCPL MD & CEO

FMCG major Tata Consumer Products Ltd (TCPL) is looking at the current food inflation as a "short-term blip" and expects it to moderate in the next two quarters along with a revival in the consumer demand, said its Managing Director & CEO Sunil D'Souza.

Tata Group's FMCG arm has ruled out any immediate price hike though margins are under pressure as it wants to "continue the volume momentum", as part of its growth ambitions, he said.

"We are a growth company, and we will target double-digit top-line growth (revenue) and bottom line (margins) ahead of the top line, accepting for the right short term, which is the next two quarters," D'Souza told PTI.

He also said food inflation remains high and in October, it was almost at double-digit impacting urban consumption to a bit. However, the good news is the vast majority of India lives in the villages and the rural demand has started to come back after being under pressure for some quarters.

"In the short term, probably for a quarter, or maybe two quarters, you would see a pressure on margins.

But I do expect momentum on top line and market share to continue," he said Recently, several listed FMCG makers in their latest September quarter results reported an impact on their earnings due to high food inflation, which slowed down the pace of urban consumption.

"Food inflation is a short-term blip and over the next two quarters, I do see that moderating and when that moderates, we do see demand coming back," he said.

In segments like tea, in which TCPL is a leading branded player, the company saw an increase of about 25-30 per cent in raw material prices but it did not pass on the price hike to end consumers.

"We don't want a demand shock coming in. So we have to be comparative. We have to make sure the category continues to be chugging along. So we have translated bit by bit, and we will be taking gradual price increases," he said.

According to D'Souza, he is a "firm believer" that margins will come back if structural costs are right, but if you lose on market share, "getting it back is a very expensive and tiring climb back".

"Structurally, in the last five years, we had a 12 per cent top line, 14 per cent EBITDA growth and close to 20-23 per cent of net profit. We aim to continue that trajectory going forward," he said.
When asked about the price hike, D'souza said besides the tea and salt category, he did not see "any significant increase".

"Pulses (Tata Sampann) did have inflation in the first six months, and there, we calibrated the prices very quickly," he said, adding that "gradual price increases in tea and salt have already taken it and balance would be minimal".

Like other FMCG makers, TCPL is also having faster growth from Quick-Commerce as its online sales are growing "significantly" fast. "e-com as a percentage of my portfolio was about 10 per cent in the same quarter last year, and, this quarter is about 15 per cent of my portfolio.

Q-commerce is coming from nowhere. It's close to about 48 per cent of the e-com business," said D'souza, adding that it "is an opportunity". Besides, TCPL is expanding its distribution network.

It has a direct reach of 1.6 million outlets compared to 0.5 million, which was four years ago. It has a total numeric reach of 2 million outlets which includes wholesale and other channels.

TCPL is also focusing on innovations in the segment. According to D'souza, TCPL's innovation-to-sales ratio was 5.3 per cent in FY24 and now aims to be around six per cent as it goes forward, which is a good number for a food and beverage company.

On capex, D'souza said it would be a "decent" amount but "more of maintenance capex and not significant expansion capex". TCPL works on an asset-light strategy, where most of its portfolio like tea and Sampann range etc, gets work done through suppliers who have invested to build capacities.

TCPL was formed in February 2020 after the merger of Tata Global Beverages and Tata Chemicals consumer products business. It aims to be a total FMCG company, though it still largely has a presence in food & beverages and is yet to have a presence in the personal care or laundry segment.

"In my mind, you should first build on your strengths and then derive those opportunities before you venture off into a completely different space," he said, adding, "I do think there is a significant amount of runway left in F&B. If you distil the FMCG space, F&B itself is about 80 per cent of FMCG".

Earlier this year, TCPL acquired Capital Foods Ltd and Organic India with a combined enterprise value of Rs 7,000 crore as part of its expansion. On being asked whether it is still scouting for new opportunities, D'souza said, "TCPL is a growth company and we will grow organically and inorganically.

Nothing changes there." However, he also added in the short term, it is focused on the full integration of Capital Foods which owns brands like Ching's Secret, Smith & Jones and Organic India "Once we get all that in place and we have set those businesses on the right trajectory, we will continue to look for newer opportunities," he said.

On Tata Starbucks -- a 50:50 joint venture between Tata Consumer Products Ltd and Starbucks Corporation, D'souza said it aims to have 1,000 outlets by FY28. It was operating 457 stores across 70 cities by the end of September quarter this fiscal.

TCPL's consolidated revenue in FY 2023-24 was Rs 15,206 crore.