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TCPL’s 1QFY25 earnings print was mixed bag – India (organic) business was weak on sales and margins while International business continued to do well which led to better operating performance. However, PAT was much below estimates owing to higher depreciation and interest expenses on account of recent acquisition. Within India business, Beverages disappointed due to flat Tea volumes (impacted by harsh summer) and subdued growth in Nourischo. Foods (organic) continued strong trajectory with volumes rising 10%, led by strong growth in Salt and Sampann. International business growth was ahead of our expectation at c.17% (cc growth at 8%). International Tea did well with healthy growth across geographies (UK, Canada, US); however, US Coffee was relatively weaker. Margin delivery remained strong aided by benign RM and pricing. Unbranded business also performed well. Growth business (organic) grew 20% and constituted 29% of India business. Execution on growth business, extracting synergy benefits in recent acquisition and sustaining International business margins will be key as rich valuations (62x FY26E) provide little headroom for error, in our view.

* India business revenue construct mixed bag as higher growth in Foods was offset by weakness in Beverages; International business did well: Consolidated revenue and EBITDA grew 16.3% and 22.4% to INR43.5bn and INR6.7bn respectively, while Adj PAT declined by 6% to INR 3bn. Sales and EBITDA were ahead of our expectation, while higher depreciation (amortisation cost of INR 550mn) and interest expense (bridge financing availed to fund acquisition) led to a miss on profits. Segmentally: 1) India Beverages grew 6% yoy (1% excl Organic India) impacted by flat volumes in Tea. Norusicho sales grew by 7%, impacted by intense summer and delayed price hikes. Coffee continued strong momentum and grew 28%. 2) India Foods business grew a healthy 30% (organic growth was 14%) - relatively higher vs that seen in the past. Salt grew 9%, led by 8% volume growth. Tata Sampann continued strong performance, growing 37% (2/3rd growth from base portfolio and balance from new launches). 3) International business growth of 10% (8% cc) was ahead of our expectations, led by pricing. US Coffee declined by 4%, International Tea did well with healthy growths in UK & US. 4) Starbucks’ growth was muted at 4% (vs 12% growth in FY24) – slower vs the growth in store-count (c.+26%).

* Higher A&P and weaker GMs impact India profitability, International margins surprise positively: India business gross margins fell by 177bps to 36.5% (impacted by price cuts in Tea and inventory corrections in acquisition) while subsidiaries gross margins expanded c.1360bps (aided by pricing) resulting into consolidated gross margin expansion of 274bps to 44.9% vs (JMFe: 44.4%, tad better than our expectations). Personnel costs grew by 16.6% yoy while other expenses (inclusive of high A&P spends) grew by 27.8% yoy (India A&P up by 44.8%) at a relatively faster pace. Resultant consol EBITDA margin expanded by 77bps to 15.3% despite compression at standalone level. Segmentally, India Branded EBIT margin fell 168bps yoy to 11.6% while International Beverages EBIT margin rose 383bps to 16.8%.

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