On international business, specifically US coffee - what are your expectations?
On the international business, if you are referring to its U.S. coffee, U.S. coffee, we took one round of price increases in July. We've had one round of deweighting happening in November and we have announced a price increase around the corner starting early next year. So we're keeping our fingers crossed. But we are announcing pricing in line with what other players in the market are doing in early 2026. The point is, given our market share in the U.S., we are more price takers than price makers. And the good part is we've grown volume as well as market share in the U.S. in bags. K-Cups also has started to see positive traction. Margins are under pressure, but it depends on how coffee prices move. And I would not try to second guess coffee prices now.
Other expenses seems to have gone up sequentially quite a bit on a consol level. What is triggering that? And should one expect them to remain at these elevated levels?
I think we had some one-off in that. So I think current levels are normative levels, should continue to remain at these levels.
On re-inventorization from GST - do you get back all the inventories from destocking or is there a genuine stock-out so that part of demand will not come back? How much is GST re-inventorization in Q3 versus days lost in first week of October and in Q2?
So Abneesh, your guess is as good as mine. We are in the food and beverage business. So it's not that you can -- you don't have to eat food to, this thing, you can push up purchases to a little extent. But my broad assumption, and we're seeing that, right, overall, we are seeing the categories come back to what it was pre-GST. Now how much of that was postponed and/or completely lost, I wouldn't want to hazard a guess. But broadly, our -- this thing about 30% of the growth categories, driving 30% top line continues to remain. RTD, like I said, didn't have a -- while the GST rates did drop from 18% to 5% for categories, didn't have that much of an impact because it is impulse and that's not something you can postpone. And therefore, RTD continues to deliver strong growth going forward.
E-commerce, quick commerce and modern trade is 37%. In your two core categories of salt and tea, how is competition versus the other large player? Do you expect uptrading benefit as tea prices deflate? And any comments on D2C startups in tea in e-commerce and quick commerce?
So let me say the advantage of operating in staple categories, Abneesh, is that it's not a 60%, 70%, 80% margin category and, therefore, smaller D2C players coming and challenging you very strongly, that is not a fact for us in tea, salt and staples, A; B, in terms of e-commerce, quick commerce, we are market leaders, as measured by Nielsen. But the only reason I believe Nielsen doesn't report is because not all the channels give them the numbers. But we do internal tracking. And we are market leaders on e-commerce and quick commerce. See, as regards downtrading, uptrading, I wouldn't want to make a comment on gaining share, losing share. All that I would say is we strive to be between the 34% to 36% gross margin, at which point, we know that we will continue to gain market share with execution.
On international margins - do you think second quarter F'26 marks the trough and things should start to get better?
So Vivek, I actually wouldn't -- this thing, on tea, broadly, we're back to where we should be. I would still say we are at least one quarter out from seeing normalcy just because between now and this thing, I don't know how the moment -- see, tea, essentially, we had started coming off the highs as commodity. And it has started, like I said, from $4.17 was the high, it had come down close to a $3. And there was news that it will breach $3 and come down. Unfortunately, the 50% tariffs on Brazil happened, and that's when it went back. We are now starting to see softening. But if I see -- start to see softening now, it's at least 3 to 4 months out before it seeps into my supply chain. So I would say we're at least 1, if not 1.5 quarter out before seeing margins normalize.
On tariffs specifically - do you think second quarter broadly is where the trough would be or international margins still have downside?
I would say we are at least -- Vivek, I'm 1 quarter out from calling out where I'm going to land, right; because there is so much upheaval. So coffee, last year, I said I wouldn't try to hazard a guess on where coffee prices are going because every time I guessed, I guessed wrong, right? And right now, I wouldn't try to guess how tariffs are going to settle. Because remember, there was a 10%, then there was a 25%, then there was a 50%. So it's a bit all over the place. We have announced price increases effective January. If all of them go through, we will be slightly below where we should be and it will probably take one more round of price increase, probably around March or so, for us to come back to normative.
Do you think the distributor issue could cause some disruption - extra inventory in the pipeline currently which will normalize later on?
Percy, the good part is when people start throwing about inventory numbers and all that, I'm also amazed because sometimes I also struggle to get the same numbers, right? I mean, everyone is free to put whatever numbers there are. We follow an ARS system. We monitor distributor closing stocks every month. Actually, last month, stocks have dropped, not increased in the distributor system. It is just that the ARS system makes sure you are ordering every single -- or every salient SKU across categories that we want to sell in that geography, and you've got to maintain a specified number of days of inventory. That, I think, is a critical point.
On tea - two-part question. First, there were price cuts in Q2 because of soft tea prices. Should one expect further price cuts or are all price cuts behind now? Second, given you will start cycling a higher base, what level of sales growth should one expect in second half for tea? On tea margins, they have come back to normative levels - should one expect similar margins in second half or is there still room for further margin improvement?
So Mihir, let me answer the second question first. We've broadly always said we will operate between roughly a 34% to 36% gross margin range for tea. And we have broadly reached that level. And the reason why we say 34% to 36% is if we try to go beyond that, you have to remember that, A, it's a competitive environment out there; B, it's a largely commodity price indexed business. And therefore, we will start bleeding share at that point. And market share to me is an extremely important factor in any business. So we will operate in the 34% and 36% and make sure that we keep making corrections in pricing as and when needed. Number two, going back to your first question. Again, the principle is it's a 34% to 36% margin, that is the longer-term guidance, A; B, also, we've always maintained that in tea, we will have mid-single-digit growth, volume growth and a couple of bps of price mix and therefore mid- to high single-digit total revenue growth. Now that formula can change between volume and price from time to time. Last year, we had high price-driven growth. I would think as we give out pricing, as we take down prices, we will see volume-driven growth coming back into the category. So broadly, I would say, more importantly, the mid- to high single-digit top line growth is what we would guide for.
On international sales in non-branded, it seems to have turned better largely because of coffee or coffee prices. Are these sustainable? And if not, what level of growth should one expect in these businesses?
See, in the unbranded business, I would urge not to look at the top line. It is more the margin because more or less, it's conversion, right? We buy the coffee, convert it into either spray dried, freeze dried and sell it back to the big boys, right? And therefore, it is a margin which matters. While we saw a 26% top line, the margins were broadly in line with where it should be. It is, I would say, the low teens is where non-branded operates, and that is where we've landed. So coffee prices going up and down, your guess is as good as mine. Everything was starting to come down from a $4 level. It had come down up to $3. And then this 50% tariffs in Brazil happened. Brazil supplies roughly 30% of the U.S. coffee, and then the whole thing went north again. We are starting to see some softness again. But I would say broadly, it's the margin and not the absolute numbers that I would urge you to look at.
On Capital Foods - GST disruption impact: what would have been normal growth if GST disruption was not there? And which new product lines are you more excited about in Capital Foods medium and long term?
So that is -- your guess is as good as mine. We were tracking on a, let me say, a very good, high double-digit -- or a decent double-digit growth rate before 22nd. I had not expected to see that much disruption that we did see, and the disruption was both GT and MT. MT, obviously, because they were downstocking, because they wanted the right price on the shelves, GT because on 22nd onwards, we started to pass the extra GST as a discount. And obviously, retail trade a lot of it, general trade sees this as margin so that probably we didn't calculate in as much detail. But that I would say broadly, we are back to normal sales. In terms of new product development; A, the core Chinese chutney and the extensions thereof, right, including the chili oil, etc., that's one pillar that we're working on. The second pillar we are working on is the noodles portfolio. Which is you've seen we've got hakka, we've got instant. And most importantly, the third piece, which is now we've -- I think we said that when we had bought out Capital Foods is that we had looked at it as moving beyond desi-Chinese into an oriental portfolio. So the Korean launches which we have done, right now, it's only, I would say, ramen and instant noodles. But you would see much more coming out of the Korean platforms as we go forward.
On salt market share - volume and value growth is good but market share is flat. Why hasn't market share trended up given this growth rate?
But just to clarify, Vivek. I think what you're seeing is MAT. Of course, in the last 3 months, we have gained significant share in salt, almost 100 basis points plus. So I think if it continues, then we will start seeing it reflected in MAT as well.
On tea market share - more than one-third of business is not represented by Nielsen. Do you think ex of that - in the two-third of the market that Nielsen does measure - you are still losing share in general trade? What will it take you to stabilize market share if there are any losses?
No. So general trade, broadly, Vivek, the hypothesis that if I equate distribution, I will equate market share. That math continues to hold. So there is no dispute in that. It is just that I'm taking that much more time to cover that gap. That's about it. So it is primarily to do with specific geographies in, say, Eastern UP, specific parts of Andhra and specific parts of Tamil Nadu for me to cover the gap. If I just total these 3 geographies, it is more than the India number, right, which means the rest of the India number overall average, I'm ahead in distribution than this. So the focus continues to be drive there. And this is mostly semi-urban rural. So it's taking time for us to go down the pop strata. As I said, last year, we have gone up to distributors at 50,000 pop strata. And right now, we are appointing sub-distributors at 20,000. At some point of time, we will look at going below that pop strata as well.
Between Organic India and Capital Foods there is disparity in growth rates. Once we are out of this quarter, should Capital Foods move to high teens or higher?
Yes, yes. So the reason why you're seeing the disparity, Vivek, is, remember, half the business of Organic India comes from exports, right? And if you remember in the last quarter, one of the hiccups in Organic India was that our supply chains in the U.S., we figured out quite late that it was a long, long lead time. And this quarter, we've got it right. And that's why the U.S. has come very strongly to the party, A; B, in India, Organic India, one of the big assumptions was that building the pharma channel will give us growth. And also by extension, Capital Foods, building a foodservice will give us growth. The pharma channel has given us a far better contribution in overall terms to Organic India than Capital Foods -- the foodservice channel in Capital Foods. So that is what is driving Organic India. But going forward, it should be, I would say, a strong double-digit growth for Capital Foods as well as Organic India.
Growth portfolio's performance has visibly turned around this quarter. At what scale do we expect base effect to catch up? And within this portfolio, have brand equities started to establish in terms of repeat purchase or is it largely in experiment stage, beneficiary of product and distribution expansion?
So Tejas, I would say broadly 30% of portfolio growing at 30% will continue for some time to come. The whole parameters inside might change, but overall, we do expect to deliver 30% growing at 30% for at least, I mean, the foreseeable near term, right? And the reason we're quite confident about that is whether it's Organic India, Capital Foods, the penetration levels remain low. Distribution remains a big opportunity and the TAM for the categories that we play in are significantly high. And like you've seen, we've now expanded for Capital Foods, we started to play Korean. We started to play the noodles portfolio. We've expanded beyond just the Schezwan Chutney. Organic India, you've seen the whole organic food space lighting up apart from the supplements and this thing, the distribution ramping up. RTD per capita consumptions are abysmally low in India compared to any country, I mean, any middle-income country. So that's going to continue for some time. Sampann, everything that we've done seems to be working very well. My dry fruits portfolio is hitting a INR300 crores run rate. It is, what, a 2-year-old phenomenon. My cold-pressed oil is sitting at INR250 crores run rate. Nidhi is nodding in front of me. Vending business, which you just started a year back, maybe 15 months back is now INR80 crores, INR90 crores run rate. Foodservice is at a decent clip. Pharma is at a decent clip. We've just got listing into the largest pharma retailer in India. So distribution, penetration, both brand and execution-driven portfolio expansion, TAM expansion, I think, opportunities for us across the place. If we don't deliver 30%, I think the fault is on our side.
Last quarter you called out that you are not happy with growth portfolio's performance. You also promised to go back to 16% margin in near future with a bridge quarter at 13-13.5%. How should we think about margins now - are we out of the slump and should margins stabilize at desired level?
So I've always maintained that a good foods business in India should be between a 17% to 20% EBITDA margin and we strive towards that. Yes, we did get it into a little bit of a reverse gear after -- I mean, through last year as coffee prices shot up. I think Q4 of FY '25, if I'm not mistaken, we came close to 15 plus number. Now we do expect by Q4, broadly, we should be in that ballpark. The only spoiler in the whole piece is coffee prices. More to do with the branded coffee business in the U.S. more than anything else because, as I said, the unbranded piece is a pass-through and therefore margin is not impacted as much. But it is the U.S. coffee which is probably the only outlier in the pack. By the way, if I added the impact from the U.S. coffee back here, I was in the 15% ballpark even this quarter.
On RTD beverages - with the GST rate drops, do you see any fundamental advantage in this category? Are there non-local players in the segment? And how should we see normalized growth going ahead given bad weather, some channel adjustment at end due to GST drop?
So Arnab, I think channel adjustments, I would question because this is an impulse business. And normally -- by the way, in season, I would say there are -- for the high-volume outlets, there are multiple deliveries in a day, not only in a week. So inventory is never a big -- or never should be a big thing in this business, number one. And therefore, like I said, we did not see too much of an inventory adjustment in RTD, and that's why we delivered the growth, A. B, in terms of competition, I would say the 5% does help us because, as you said, we will not play in carbonated soft drinks. And carbonated and/or caffeinated soft drinks continue to remain in the high GST bracket. So from that perspective, affordability is definitely an option here. Actually speaking, in water, for example, we've dropped prices. The INR10 bottle is now INR9, INR20 bottle is INR18. So we will probably look at upsizing at some point. But yes, compared to carbonated and/or caffeinated beverages, affordability is a strong point now.
Competitive intensity continues to be high outside of water. Campa aggression. How are those segments doing and any further steps needed to get consistent growth?
So Arnab, broadly, you've seen the business come back to normalcy with a 25% volume growth. And we had consciously taken those price drops last year, right, in line with Campa. So I would say broadly as long as you are clear of your value proposition, you are clear about your brand promise and your product acceptance with the consumer, making sure that the value proposition to the retailer stays right, which is a critical piece we've seen us coming back. I would say you would only see growth accelerating on the non-water portfolio, if you may, on RTD going forward.
On energy drinks where you are now coming with a still formulation - what is the thought process? Is this in pilot stage? How would you think about the potential consumer of this product?
So let me say, fundamentally, if you dial back 20 years, the entire energy segment was still. I can go on and on about carbonated energy and how it was invented, but that's for a separate time. But incidentally, from a consumer perspective, still or sparkling doesn't make the difference. This is the actual product benefit that the consumer looks at it. And the hypothesis is energy at a INR10 price point, which is sustainable from a profitability for me, does have a role to play. And we had done a test market last year. The brand name, the product formulation, the whole marketing mix did not resonate. That's why we pulled it out. This is -- I would say you're right. It's probably -- I would call it an advanced pilot phase. We're testing out the proposition albeit on a slightly broader footprint. If it works, then we'll figure out how to put muscle behind it. As of now, it is early days, early signs are good. But I would say we're still not there in calling it a slam dunk.
On Sampann where we have seen significant acceleration - how much is pricing, volume or new segments like dry fruits contributing? What has driven the incremental growth from 25-30% to 40%?
So A, Sampann broadly is in the commodity profile. So there cannot be too much of a pricing-driven growth, right? Because as you're moving people from unbranded to branded, the premium over the unbranded and/or the regional brands is a critical piece. For example, in pulses, we very, very clearly fixed the premium that we will operate in versus specific regional players. Now the whole growth in Sampann, of course, the base portfolio continues to grow at a very healthy clip. The dry fruits and the cold pressed oils which we have launched, I think that have only accelerated the growth. Now you'd remember, it's -- dry fruits is today, a Board member reminded me that it's a INR75,000 crores category in India, largely unbranded. So it plays perfectly well in our hypothesis for Sampann that we will enter categories which are trust deficit, high TAM, good margin, good growth rate and where I can build a differentiated portfolio.
On NourishCo - after Campa started in your territory of Orissa, AP, Telangana and expanded, is the growth acceleration this quarter mainly because of distributor margins in place or has Campa competition stabilized?
So I think last year, we had said very clearly, the INR10 proposition has not changed. It is just that Campa came in with 2x the retailer margin. It is not distributor. It is 2x the retailer margin that they were offering versus our INR0.80 and thereabouts, they came in with a INR3.50. And in categories like soft drinks and water, the retailer plays a very, very big role because that's impulse, you're thirsty, at the point, you're willing to pick up what the retailer is giving you. That was what made the difference. We should have taken the shot early in 2024, but we did not see it. And finally, by the time we took this thing -- action was about June of last year. So we've cycled more than 1 full year of -- and as I said, as long as your product proposition to the consumer is strong and you execute against that, I see no reason why anyone else coming in can disrupt this thing. So we did index our price. And therefore, you see -- even this quarter, you see volume at 31% but value at 25%. So we did do that indexation. But going forward, we'll continue to maintain that and be competitive both on a retailer margin as well as consumer value proposition.
Hypothetical question on Tata Copper - if Reliance scales up aggression in hydration / bottled water segment with elevated retailer margins similar to what happened in RTD, what is the thought process to not see a repeat?
So we're very, very clear. We will not lose market share this time around to retailer margin. We're keeping a close eye on it. Either retailer margin or consumer value proposition, if it changes, we will react. To me, maintaining market share is always a better proposition because I can build back margin at a later point of time. Maintaining margin and losing relevance and market share is not an option.
On India margins - you flagged risks to international margins from coffee. But just looking at India EBIT margins, would you say current margins have further upside or are these the margins you are comfortable working with? Looking at close to 10% EBIT this quarter and peak was about 12-13%.
I'm not sure about the peak of 12%, 13%. Broadly, India margins, we are in the ballpark of where we should be. I would say EBITDA, we are roughly in the 15% margins for this quarter, and that's where we should operate. Broadly tea, salt, everything, the gross margins are in the 34% to 36% range. And growth businesses, probably a little bit of a play out there but it's relatively a smaller part of the portfolio. So I would say India margins, broadly where they should be.
Since tea prices started to correct through the quarter with benefit from lower tea prices accruing in second half, plus goodness of growth from M&A flowing, should there be margin upside from here for India?
So on the tea prices, I maintained, right? We operate in the 34% to 36% gross margin. If you try to get too greedy, we will lose market share because it's a commodity-driven business. There is a big competitor and there is multiple regional and local players out there. We've seen time and again, if we don't operate in the 34% to 36%, we start losing share. So we have started -- actually, this quarter has been delivered despite us giving back some pricing. A lot of the pricing was -- some of the pricing was given during the quarter. A lot of it came during the end of the quarter. So tea prices going up and down, my this thing would be not to read too much into it as long as I operate in the 34% to 36% range.
On competitive scenario with other players in tea market - when prices are being cut, who takes the lead? Is it one player over another? Is it somebody who is a market leader in a particular geography taking a cut? How are you and the other player approaching pricing?
I don't know how the other player is approaching. All that I would say, where I lead, if there is an issue, I would take up price if there is a pressure on tea cost. Because similarly, if I see tea prices going down, I know people -- I mean, if I'm the market leader, then share has to come out of me, which I'm not comfortable with. That's why I go down first on pricing. So I would say wherever I'm the market leader, I move first. But where I'm not, I would wait for the market leader to move.
There have been news articles about discontent in distributors and some protests. In your view, what is the reason behind this discontent?
So Percy, fundamentally, when we started off in 2020, distributors were either tea distributors or salt distributors. We integrated, more or less, I would say, about 85%, 90% of the distributors whom we selected as common distributors were from within that fraternity. Now as we expanded our portfolio, we've got Capital Foods, we've got Organic India, we've got Soulfull, we've got Sampann. And I do think distributors of Tata Consumer Products have to distribute to the entire portfolio of Tata Consumer Products. Picking and choosing portfolio is not an option in my mind. I would say that is the single biggest driver. Yes, after that, there were some operational issues, which are par for the course in any distribution business. But the fundamental thing is it has to be a full portfolio distributor for Tata Consumer.
Isn't it weird that distributors are unhappy to take on more lines since it generally adds to their business?
So salt is a more wholesale-driven business. So life is more comfortable. You sit back and make deals. Capital Foods is a retail outlet to outlet distribution, you've got to make a little bit of more effort. So every category is different. Every distributor has different strengths, Percy. So some people like it, some people don't. But you're absolutely right. In my mind, more categories means more lines, more top line and therefore, better money in the bank. I just hope everyone sees it that way.
On consolidated margins - going into 3Q and 4Q you would be lapping a high base of margins. Do you think there is any chance of Y-o-Y margin compression going into the next couple of quarters?
You would see a Y-o-Y expansion of margins going into the next couple of quarters, Percy, because if I said that by Q4, we will come back to broadly the ballpark of about a 15% EBITDA, right? I have to cross about 130, 160 bps, if I'm not mistaken, from here to there. And apart from the U.S. business, U.S. coffee business to be specific, broadly, there is no pressure on margin from any of the other businesses.