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Tea remains resilient; growth portfolio scales up as next growth engine

After 5% YoY growth in FY26, India’s tea production declined 1% YoY in Jan-Aug’26 due to adverse weather conditions in Assam and West Bengal. Tea prices peaked in Jun’26 but declined by 8%/3% MoM in Jul/Aug’26, owing to the normalization of regulations imposed on Nepalese tea imports and higher production in Jun’26 (up 14% YoY). The Indian tea business of Tata Consumer Products (TATACONS) is expected to remain resilient, with the company implementing pricing actions to partly offset the cost pressure. Moreover, the company continues to expand its growth portfolio with launches across segments. The growth portfolio is emerging as the next key growth driver, gradually reducing the company’s dependence on its core tea business while reshaping the product mix and tapping into new and large market opportunities.

Tea production outlook resilient despite weather disruptions

In the FY26 tea season, domestic production grew 5% YoY to 1,383m kg, led by ~6% and ~2% growth in North and South India, respectively.

* Tea production for the current season YTD (Jan-Aug’26) has declined 1% YoY to 840.2m kg, caused by the severe heatwave and drought conditions attributed to El Nino. Production in South India has declined by 4% YoY, while production in North India has been flat.

* All India tea production rose 2% YoY during the first flush (Feb-Jun’26, contributed 34% to the total tea cycle volume in CY25 and generally has the best quality), fueled by strong 14% YoY production growth in Jun’26.

* July is usually the start of the second flush (Jul-Sep, contributed 37% to the total volume in CY25 and has the second-best quality). In Jul’26, all India tea production declined 10% YoY to 164.33m kg, as growth in South India (up 18% YoY) was offset by decline in North India (down 14% YoY).

* Heavy rainfall in Jul’26 flooded tea gardens in Assam and West Bengal, making plucking of tea leaves difficult for workers. As a result, production in Assam fell 13% YoY to 91.08m kg in Jul’26, and production in West Bengal declined 14% YoY to 43.87m kg.

* Production grew 4% YoY in Aug’26, supported by a recovery in North India (+4%) and South India (+3%), while West Bengal wasthe key growth driver with a 15% YoY increase.

* Going ahead, we expect tea production to remain flat in FY27 despite floodrelated disruptions in Assam and West Bengal, alongside the adverse impact of El Niño on tea-growing conditions.

Tea prices remain firm; calibrated pricing to protect margins

* In FY26, TATACONS’ tea business displayed resilience amid inflationary pressure. The company navigated a volatile commodity pricing environment by calibrating pricing actions and implementing targeted market interventions to ensure growth.

* Despite a 14% YoY increase in Indian tea production to 160.4m kg in Jun’26, tea prices remained firm, peaking at INR233/kg during the month. Tea prices were supported by tighter quality and testing requirements for imported tea, which disrupted Nepalese tea supplies to India, as shipments were reportedly suspended between 1st May and 30th Jun’26.

* However, normalization of these regulations after Jun’26 led to prices declining by 8%/3% MoM in Jul’26/Aug’26 to average INR214/INR206 per kg. Despite the sequential correction, prices remained higher compared to last year.

* TATACONS subsequently implemented a price increase in Jun’26 to partially offset the rise in input costs. As per our channel checks, the company has further implemented a 3-5% price hike in the middle of 2QFY27.

* Going ahead, the company remains committed to protecting margins through calibrated cost pass-through while balancing volume growth and consumer affordability.

* We expect margin to normalize, supported strong production and the stabilization of tea prices.

Valuation and view

* With the moderation in tea prices from its peak and strategic price hikes in the tea business, we expect TATACONS’ standalone gross margins to remain resilient in FY27.

* The company is expected to sustain its growth momentum, aided by the mid-tolong-term triggers such as

1) strengthening and accelerating its growth business

2) expanding its product portfolio and innovation

3) enhancing its focus on premiumization and health and wellness products

4) higher innovation-tosales ratio.

* We expect TATACONS to clock a CAGR of 10%/15%/20% in revenue/EBITDA/ PAT during FY26-28. Reiterate BUY with an SoTP-based TP of INR1,230.

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