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Brewing a legacy in the tea business

Tea has been a core product and an integral part of Tata Consumer Products Ltd’s (TATACONS) portfolio, with its India tea business accounting for ~32% of the company’s total consolidated revenue in FY23. In this note, we have analyzed tea prices and production trends, and its impact on TATACONS.

Unfavorable climatic conditions led to marginal decline in tea production

? Tea production for the current season (Feb-Oct’23) declined 1% YoY to 1,133m kg vs. 1,366m kg in CY22.

? During the current season, production in North India (contributes to ~84% of total tea production in India) was down 2% YoY at 948m kg due to a 3%/2% YoY decline in Assam/West Bengal (contributes to ~52%/30% of total tea production). However, production in South India was up 3% YoY at 185m kg.

? All-India tea production during the first flush (Feb-Jun’23) declined 1% YoY, dragged down by an 11%/4% YoY decline in Apr’23/Jun’23 but was partially pulled up by 16% YoY growth in Mar’23. (First flush produces best-quality output of entire tea season; it contributed to ~33% of the whole tea cycle volume in CY22.)

? During the second flush (Jul-Sep’23), all-India tea production declined ~6% YoY, due to a 17%/4% decline in Sep’23/Aug’23. Jul’23 production rose 6% YoY.

? The production decline was mainly attributed to unfavorable climatic conditions, especially scanty rainfalls in Assam and West Bengal. As per IMD, Assam/West Bengal received 19%/22% lower than normal rainfall during the monsoon season 2023 (Jun-Sep’23).

? All-India tea production in CY23 is expected to be muted YoY, owing to belowaverage rainfall in major tea producing states such as Assam, West Bengal, Kerala and Karnataka.

? Strong domestic consumption drives tea sales for TATACONS

? In CY22, tea production stood at ~1,366m kg (up 7% YoY), and exports grew 18% YoY to 231m kg (~17% of total production).

? Higher demand from Russia and UAE owing to lower production/exports from Srilanka (down by 16%/13% YoY in CY22) led to an increase in Indian exports.

? For Jan-Sep’23, tea production stood at 964m kg (down 4% YoY) and exports declined 5% YoY to 158m kg (~16% of total production).

? However, the company’s India tea business reported 3% volume growth over Jan-Sep’23, led by steady domestic demand.

? Despite the volume growth, TATACONS has been losing market share for the last three quarters (down 113bp/110bp/95bp YoY in 4QFY23/1QFY24/2QFY24).

? The resurgence of small players (growing by ~40% higher than larger players) has led to market share loss in the segment.

? TATACONS generally witnesses blips in market share YoY as and when tea prices cool down.

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