Tata Consumer says the GST rate transition has hit sales of key brands

FMCG company Tata Consumer Products director Sunil D’Souza on Monday said three of its brands – Capital Foods, Organic India and Tata Soulfull – have seen an impact on sales during the transition phase of the GST rate reduction, with business disruption far greater than expected. To be fair, the company recorded “decent double-digit growth” during the pre-GST transition phase. The new GST rates were implemented from September 22 following the announcement by the Center on August 15.

“I didn’t expect to see as much disruption as we saw, both in general (GT) and in modern trading (MT). MT, obviously because they reduced their stock, because they wanted to get the right price on the shelf, GT because from September 22 (September) we started passing on the additional GST as a rebate, and retail and general trading see this as margins, so probably we didn’t calculate in such detail,” D’Souza told analysts in his earnings call on Monday. The company said in its earnings release that Capital Foods’ sales, especially in MT, were negatively impacted in September following the announcement of the GST rate change.

Capital Foods and Organic India reported revenues of Rs223 crore and Rs133 crore respectively for the quarter. A year ago, Capital Foods’ sales were Rs 206 crore and Organic India’s Rs 102 crore. Capital Foods is the parent company of the Indian-Chinese Ching’s Secret and spice brand Smith & Jones. Organic India sells healthy teas and supplements.

However, the company’s ready-to-drink business was not affected by the GST transition phase even as the GST rate fell. D’Souza said the impulse consumption nature of this business meant there was no impact. “…People don’t wait to drink a bottle of water or GlucoPlus, while you can postpone purchases for everything else. And that is reflected in Capital Foods, Organic India and Tata Soulfull,” said D’Souza. Tata Consumer Products on Monday also announced that standalone net profit for the second quarter ended September 30 grew 28% year-on-year (YoY) to Rs 285 crore, while revenue from operations grew 18% YoY to Rs 3,595 crore. “This was the second consecutive quarter of double-digit growth in India’s core businesses, both tea and salt,” D’Souza said.

D’Souza said the second quarter acted as “the bridge” between the first quarter, which was under pressure on margins, and the third quarter, when tea prices are expected to return to normal. However, he said the movement of coffee prices should be monitored in the future.

The company’s international revenues grew 9% year-on-year in constant currency growth terms. Tata Consumer Products said its joint venture coffee cafe chain Starbucks saw 8% year-on-year sales growth and positive same-store sales growth during the quarter. The brand now has a total of 492 stores spread across 80 cities and seven new stores were added last quarter.

On Monday, Tata Consumer Products Ltd closed at Rs 1,199.5 per share, up 2.95% from its previous close.