Tata Consumer Products Ltd (TATACONSUM) Q3 FY22 Earnings Concall Transcript

Tata Consumer Products Ltd (NSE:TATACONSUM) Q3 FY22 Earnings Concall dated Oct. 21, 2022

Corporate Participants:

Nidhi Verma — Investor Relations and Corporate Communications

Ajith Krishna Kumar — Chief Operating Officer

L. Krishna Kumar — Executive Director and Group Chief Financial Officer

Sunil D’Souza — Managing Director and Chief Executive Officer

Analysts:

Unidentified Participant — — Analyst

Sumant Kumar — Motilal Oswal — Analyst

Percy Panthaki — IIFL — Analyst

Palak Shah — Infina Finance — Analyst

Amit Purohit — Elara Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, Good day and welcome to the Tata Consumer Products Limited Q2 FY ’23 earnings conference call hosted by Dam Capital Advisors limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now have the conference over to Mr. Rajiv Bharati from Dam Capital Advisors limited. Thank you, and over to you sir.

Operator

Thank you, Faizan, good afternoon, everyone. Representing Dam Capital it is our absolute pleasure to host Tata Consumers Q2 FY ’23 results conference call. We are in the midst of a festive season in India and I thank you all for taking time out for joining this call. Now I just handled with a call to Mr. Nidhi Verma from Tata Consumer for the introduction of the management and for further proceedings. Nidhi over to you.

Nidhi Verma — Investor Relations and Corporate Communications

Thanks, Rajiv. Hi, welcome everyone, and seasons greetings to you and your loved one. I know that there have been a lot of results since yesterday, and it’s been a busy day, but I hope that you have had the time to go through our material. On the call today, I’m joined by Mr. Sunil D’Souza, Managing Director and CEO, Mr. L. Krishna Kumar, Executive Director, and group CFO, Mr. Ajit Krishna Kumar, COO. As we do usually we spend about 15 minutes or so walking you through some key updates during the quarter. And then we will open the floor for Q&A. So without further ado, over to you.

Ajith Krishna Kumar — Chief Operating Officer

So if I go to the executive summary, for this quarter [Technical Issues] so we grew our top line at 11% despite a difficult demand environment and when I say demand environment, I’m talking of macro headwinds, I am talking of inflation and I am talking about currency. On a three-year basis, we have grown at a 13% top line. Consolidated EBITDA grew 4%, margin down 100 basis points year on year primarily impacted by the International Business. During the quarter, India business grew 9%, India beverages were down 2%, but on a three-year CAGR basis, we are up by 14%. India foods grew strong 29% however, volumes were soft. You have to remember, we are cycling a very, very aggressive growth of last year on this one. And on a three-year basis, the business has grown at 22% CAGR.

International business was up by 7% a 6% in constant currency. The India Business I talked about having grown at 9% EBITDA grew at 24%. However, inflationary pressures in specifically the U.S. U.K. currency weakness and the fact that while we have action pricing, it takes some time to execute in the international market stake, we have had a lower EBITDA. However, the business is on a strong footing because we’ve had volume market share gains both in tea and salt. While volume share is slightly up in tea, value share is slightly low because we have given up some pricing, just to make sure the volume momentum doesn’t stall.

Our growth businesses which is ready to drink, Sampann, Soulful, All Around very very strong trajectories. They have been growing by 50% and this 50% number has been consistent over the last few quarters. The ready-to-eat business, we are relaunching and revamping the entire business including the entire marketing mix. We have launched it in India under the brand name of Tata Sampann Yumside. Internationally, we’re using the brand name Tata Rassa.

L. Krishna Kumar — Executive Director and Group Chief Financial Officer

So if I go to the numbers for the quarter, so Ajith talked about India beverages, negative 2% India foods plus 29% U.S. coffee constant currency 16%, but the Dollar has strengthened so revenue growth of %25, international tea negative 4%, Tata coffee up by 41% driven by strong coffee prices available so overall INR3663 crores 11% Growth. So if I look at overall group performance 11% revenue 4% EBITDA, 36% group net profit, now just as a perspective here we have a one-time gain on a land sale, a disputed litigated land sale of Tata coffee, which has been there for a long time, we’ve sold it and also have some adjustments on account of restructuring, which we are doing internationally and that’s why the group net profit is up by 36%. Overall, margin on net profit up by 220 basis points and EPS growth of 22%. We are sitting with INR2000 crores plus of cash. This is despite all the payments that were made for Tata Smart Food, the increased dividend, the extra capitalization, we’ve done for Starbucks, including all that we are still INR2000 crores plus in cash.

If I go to the strategic priorities, starting with strengthening and accelerating core business distribution, we had made a commitment saying we will hit 1.5 million outlets direct by March ’23. I think we are on track to actually beat that number, because we are already at 1.4 million. The other thing which we have said is we got to strengthen our reach in semi-urban and rural which was primarily writing indirect. And therefore, we have upped the number of super stockists who reach into that geography. Modern trade continues to go from strength to strength up by 18%. E-commerce just as a perspective, we had exited FY ’22 at about 7.5% of sales and we are powering ahead even further. We are at now at 9.2%, E-commerce growth at 40%. But the most important number is 11% MPD contribution, which just shows that if we get our MPD in front of the consumers, we’ve got a winning proposition. So all that we got to do is make sure they are available and distributed.

We continue to put money behind our brands, you can see a few of the campaigns on top, just as a perspective for the first half advertising and promotion as a percentage of sales moved from 6.1% to 6.4%. Yes, there’s been a slight bit of a slowdown in this vertical. But conceptually, we are committed to continuing to increase spending on building strong brands. Coffee is a good story and good story in all the places that we play in Tata Coffee Eight o’clock, as well as India Coffee, which is up by 39%. Premiumization continues to be a focus. Tata Tea Gold Care, which we launched about 24 months back, it is now at about 5% of total sales. As I said we’ve gained a bit of volume, but lost a bit of value as we’ve taken pricing, A: in line with tea prices moving slightly down but more importantly make sure we have volume momentum in the semi-urban and rural geographies, which are on the lower scale of the brand parameters.

Reporting on brands on foods as well you’re putting money behind Sampann, you will see Manoj Bajpai there advertising for Sampann. We have entered another category of hing in line with our trust to enter categories where there is decent revenue, good margins, strong growth and most importantly a trust deficit with the Tata name can leverage. Sampann spices we have talked about launching into the south which is 40% of the Indian market. We have launched AP, Telangana and now we are ready to launch blends into Karnataka. AP and Telangana I think is a huge tick mark and therefore, we are looking at how quickly can we expand into other geographies.

On the other hand market share on salt continues to power ahead. Remember we have taken more than a 33% increase in salt prices in 12 months between July ’21 and August ’22, but despite that, we continue to gain share. We continue the momentum and innovation just as a perspective, the number of launches — new launches this year is 2x of what it was last year, and revenue from innovation is up by 16% year-on-year. And some of the few things that we’ve launched this quarter are Tata Tea Gold Saffron. We’ve launched the new season [Indecipherable] Shahi Basin plus which is a blend which makes crispier texture. I talked about [Indecipherable] and we relaunched [Indecipherable] with a 25% millets. We’ve done a full relaunch, I talked about it, of Tata Q. In India, we’re going under Tata Yum Side and internationally we go in with Tata Rassa. So now you see broadly we talked about five platforms. This is how we stack up. Current core we’ve got tea, coffee, salt. In pantry, we got pulses, spices, which we had. We’ve launched basin, poha and other staples ready to cook. This is — I would say, watch this space because we are doing an overhaul here. Dry Fruits is been a great success. And now we are looking at moving it from online to offline as well.

Liquids of course, we’ve got water and RTDs. [Indecipherable] business just as matter of fact for last quarter grew by 64%. Mini meals is breakfast, cereals and a soul [Indecipherable], ready to eat both party and soul [Indecipherable] as well as we talked about Yumside and Raasa. Snacking is the category which we’re looking at, we’re still not fully there. And of course, we’ve just started to wet our feet in protein. And when I talked about wet our feet, we did talk about alternate wheat that we launched last quarter. This quarter, we’ve got into the supplement space with Gofit. Like I said very early days, we are wanting to learn from this launch, so that we can figure out how to scale it up.

Our new engines of growth and I alluded to you it on the executive summary as well. Whether it is ready to drink Sampann, Soulful and Tata Q which is now a Yumside, Raasa is up by 50%. Just in terms of where we are seeing commodity strength, I won’t talk about the GDP growth which everyone would be familiar with, prices are more or less stabilized in Kenya but the catch is it is U.S. dollars. But when we bring it in into the U.K. it translates to pound. The pound is depreciated against the dollar and that creates the currency issue for us. In India, while tea prices were on a secular downward trend in line with the long term supply greater than demand equation, the problem is there was flooding in the month of June and July. And number two, this slight blip created by Sri Lanka going out of the equation has created a I would say very short term issue. But I do think that the prices will continue to trend downwards, which should give us enough elbow room on our India packet beverages.

Coffee while it has jumped to INR210 to about INR230 right now playing in that band and very stable. As long as we’ve taken pricing in line with that in mind, I think we are in a good space. Only things in the short — in the immediate quarter gone by because we had hedges unwinding and we had to buy at the new rates, that is why you will see a bit of pressure on the commodity. But given the fact that now we have the edges in place plus we’ve taken pricing in the market I think we are in a good place.

So I want to drain the numbers we talked about minus 1% volume minus 7% revenue and 20 basis points of shares in tea. India reports flat on volume, which is just again I’ll repeat, we took a 33% price increase in the last 12 months flat on volume share gain of 128 basis points and 28% to 29% revenue. That is for very strong [Indecipherable] Tata water plus is roughly two thirds of where it was last year, up 64% on revenue. For Vietnam, Tata coffee the whole business are a strong advocate of both extractions and plantations showing strong growth some totaling 39% revenue growth. Tata open the 300th store and open the first reserve store now in Mumbai. 99% of stores have are reopened. Same store sales are up by 24% versus the pre-COVID period. Now we are in 36 cities and we have opened 25 stores in the last quarter.

International, U.K. we’ve had volume softness, and therefore revenue softness so to speak. Value continues to hold strong. In the last four weeks we have overtaken Twinings to become the number three company in the market. U.S. again we have share gains have broadly maintained coffee back shares gained in K cups. Tea is upon revenue and coffee of course in line with the pricing up on revenue. Canada, Canada is on our strong wicket. Revenue growth in speciality tea, overall 16% revenue growth and maintaining a strong market share.

Financial performance, LK? So I just want to show the financial performance starting with standalone results, revenue at INR2131 grows up by 7% or INR143 crores. This represents in the growth mainly in the salt and tea businesses. If you look at EBITDA it is 25% led largely by the food business but also strong margins of the tea business continuing. Moving on to consolidated it’s a growth of 11% and turnover increased by INR330 crores, India business grew by 9%. The difference between standalone and the growth rate in India Business is largely due to the water business which grew over 50%. International business grew by 6% and non-branded by 30%. In terms of consolidated EBITDA, while the India business grew by 24%, International Business EBITDA actually declined. That was due to high commodity costs and coffee, overall integration, which impacted trade which impacted currency in the case of U.K. We have taken price increases in these markets, but they are coming into effect with a lag because we need to discuss with organized retail. And we see the impact of pricing coming through in the next quarter and beyond. Non-branded EBITDA led by prices, again, talking to the [Indecipherable] we will go back to the next slide. So on consolidated financials, we’ve talked about the revenue growth 11%. EBITDA consolidated went up by 4%. The muted growth is largely because of international being lower, as I explained, moving down to exception items, we have INR111 crores exception income, which largely represents a sale of an asset that we’ve been holding for sale in Tata coffee, which we concluded during the quarter. Profit after tax is higher by 36%, but what’s not shown we have a share of profit from [Indecipherable] who are higher this water at about INR34 crores compared to INR24 crores, I think in the same period last year, reflecting improved performance both by Starbuck and also by the South India plantation. Year to date, revenue is up by 11% and profits up by 37%. Stand alone topped talked through the performance of the quarter at 7% top line growth and 25% EBITDA growth flowing through to the PAT growth of 22%. In terms of segment-wise performance, India revenues accounted for 72% and internationally 28%. In terms of segment results, India Business had higher share of 84% because international performance was lower, and the same period last year. That’s it from our side, we’re happy to answer any questions that you have.

Sunil D’Souza — Managing Director and Chief Executive Officer

Yeah, just in terms of Outlook, I don’t think I need to talk about the macros inflation internationally while India has been relatively more resilient. You’ve seen the Rupee move so quickly, in the past few days. Rural continues to get stressed. We have heard that or we were hoping that monsoons and the festive season would pick things up. We’ve seen some good news, end of September, October has started off decently but how much of it is festival how much of it is structural, I think too early to tell. Keeping Fingers crossed. U.S. Fed’s monetary tightening will continue to cause as [Indecipherable] said a little bit of pain for us more in terms of currency, more translation than transaction. The impact of inflation and monetary tightening will be the key factor to watch out. As I said, we’ve taken cost — pricing actions already in international markets. Unfortunately, from the day you announce to the day it is executed takes a bit of time, so I guess it will drag on for this quarter before landing in. That’s number one. Number two, there are certain structural cost actions which are which we have already actioned in the international markets, which again, would take about three to four months to land.

Overall, I think the commitment that we’ve kept on making, we will continue to drive profitable growth. We have delivered double-digit growth which is exactly the intent that was stated by balancing margins. The tea business in India remain soft. We are aware of that. However, for me, as long as we maintain market share, we are in a strong position. As industry comes back, we will bounce back. We took pricing and solid to mitigate cost inflation and you would observe broadly, our gross margins are flat versus last year because of that, yet that’s been an impact on volumes. But the fact that we continue to gain market share is a testament of the strength of the band and our execution capabilities now. Our growth businesses whether it is Mariscos, Starbucks, Soulfulll, all have delivered strong results and will continue to deliver strong results. [Indecipherable] as I mentioned, we’ve done a full marketing mix, and therefore a new relaunch, we do expect to see significant acceleration from hereon. Given the inflationary environment and investments required, we will continue to balance margins while remaining focused on maintaining the growth momentum.

Nidhi Verma — Investor Relations and Corporate Communications

Yeah, with that, we’ll open up the line for Q&A. Thank you very much.

Operator

We will now begin the question and answer session. [Operator Instructions] Ladies and gentleman we will wait for a moment while the question queue assembles. [Operator Instructions] The first question is from the line of Abneesh Roy from [Indecipherable] please go ahead.

Unidentified Participant — — Analyst

Thanks for the opportunity. My first question is on the RT-RTC [Phonetic] brand launch. So want to understand why Tata Q relaunch happened and why have separate brand for the domestic and international? Is it a copyright issue? A related question is our RT-RTC [Phonetic] and spices these categories look very good on paper and there are already a lot of local and listed players also present in most of these. You are not exactly an early mover in most of these. So, what is the plan here in terms of market share capture from a longer-term perspective? Because there is not too much differentiation. And some of these are tough also. So want to understand from a market share longer term, what is the plan?

Sunil D’Souza — Managing Director and Chief Executive Officer

So Abneesh if I take that question, the reason for the relaunch is we went back to the drawing board after we acquired Tata Smart Foods and looked at it consumer outputs, right. Basically, we found there were issues — or there was consumer feedback on product, there was consumer free feedback on branding, there was consumer feedback on packaging, right. So if you look at it, we worked on all the three pieces. So I would strongly suggest you should try some of the new products which are there and especially if you tried Tata Q in the past, you would see the noticeable difference. In fact, at a recent strategy meet for the Gold, we only serve them products from this range and they couldn’t make out the difference between fresh versus from this set. Yeah, so that’s the product quality, A.

B: You’re absolutely right, there is an issue ideally, I would have wanted to use Tata Raasa as one brand across, but there is an issue of copyright in India and therefore we had to go two ways. But apart from that, in India, we wanted to give the cover of Tata Sampann to make sure consumers know where it is coming from because we do think Sampann has built decent equity in India which allows us entry into the consumer mind and hopefully kitchen. That’s number two. But what is going to happen is over a period of time you have to remember there are two distinct channels in the international market. One is the ethnic stores, but more than that now slowly there is the word food aisle which is growing significantly in mainstream grocery across the globe. Our intent is to be there and therefore two brand names might help us play that game in a significantly differentiated segmented manner.

Lastly, Abneesh, so we are aware that this is a market which there are multiple players there are not only players from India who are manufacturing and exporting. There are local players in those markets who are manufacturing will build pretty strong basis but given where we are, number one, given the fact that we have teams on the ground, given the fact that we have retailer relationships, and I’m talking of mainstream grocery, which is where the better margin game is, given the fact that we have logistics and sales partners, which are very, very strong, and of course, I don’t think we need to market the Tata brand name to too many people, we will be dominating the category and will we get nominal shares? No, but given the fact that it is a INR1500 Crore market and growing significant double digit, we do think it is a nice profitable business, which can become scaled.

Unidentified Participant — — Analyst

Sure, that was useful. My second question is on India branded tea, last few quarters volume growth here has been elusive for you. So, when I see the construct of the industry, almost half of the market is local, regional players, and whenever commodity deflation happens, which has in fact happened in tea last one year, these players come back in terms of advertising and promotion. So — which means that they would have come back. So, [Indecipherable] issue is almost every listed company says that they have gained market shares. But when I correlate that with your lack of volume, those past few quarters, and the reasons you are coming back then it doesn’t tie up. And second, as you mentioned, when the industry comes back, what will lead to the industry coming back, I understand the current slowdown, but it’s a very well-painted category also and you’re also re-launched Agni in the past two quarters. So why the volume growth is not coming back, taking everything into account that half of the market is still local players?

Sunil D’Souza — Managing Director and Chief Executive Officer

Abneesh, you are absolutely right. Let me just flip it around, instead of saying deflation in times of inflation is when organized players gain in this market. And the good news is you’re reading the headlines right now, whether it is Rupee, whether it is oil, etc. So we do think apart from key prices, everything else is prime for inflation, and therefore, probably should even out, number one.

Number two, the softness, if you look at it as primarily rural and semi urban, and even if you look at my portfolio, it is my mass premium and premium portfolio is doing well, the stress is at the bottom and the stress is in very specific geographies. So it’s not broad-based. I would say it is more rural, it is more semi-urban and it is more Hindi belt sort of softness, which is why I mean, I’ve been keeping an eye on the monsoon and therefore what happens and right now as I see, I can start seeing green shoots, but I wouldn’t declare victory. I think we’ve got to watch for some time. But we do think so to your point about [Indecipherable], Abneesh, I mean, in the lack of any other data to point you in which direction you’re headed, I think, [Indecipherable] is the only option on the table. The good news is we are very, very clear, you might not get volume and share numbers accurately, industry numbers accurately. But you do get distribution numbers accurately. And I do believe given the fact that we have very, very strong share of handlers. If I’m distributed, I will get shares. So therefore we are going surgically behind geographies where we have distribution gaps. And you will be amazed that despite the progress that we made in the last two years, we still got enough whitespace to play let me put it this way across the country, which is what we are focused on which should start giving us volume momentum gains.

Unidentified Participant — — Analyst

So that’s helpful. One last quick question. Starbucks, 25 new stores only, total base of 300, that’s a very sharp expansion is it because of the bunching of stores because of the COVID so approvals, etcetera those are delayed? What is the run that we should build in from an annual runrate for the next four years?

Sunil D’Souza — Managing Director and Chief Executive Officer

So Abneesh last quarter, we had not opened as many stores right. There is a bit of bunching up. But I will also leave you with the fact that I’ve maintained that Starbucks we’ve got a strong operating model. We know that same store sales continue to grow aggressively. Like I said, we are up by 24% versus the pre-COVID period. We know that store profitability is good. We know that when we open outlets, we do get very, very strong ADTs as well, even in terms of going to tier two, tier three and there is significant excitement when Starbucks enters a new town. We are still in limited if I’m not mistaken 31 cities now and 36 cities and we’ve still got significant runway to play. Given the fact that we have a strong operating model, we know there is competition coming in, we know we’ve got a window of opportunity. We are committed to accelerating stores.

Unidentified Participant — — Analyst

Sure, thanks. That’s all from my side, thank you.

Operator

The next question is from the line of Sumant Kumar from Motilal Oswal, please go ahead.

Sumant Kumar — Motilal Oswal — Analyst

Yeah so my question is regarding Tata Sampann, so assuming all the product portfolio expands and as on-date and the kind of growth we have shown 33%, so what kind of volume growth, I am not talking about value growth we can expect from Tata Sampann in couple of years.

Sunil D’Souza — Managing Director and Chief Executive Officer

So I don’t think we should look at the volume growth in Tata Sampann because by volume growth in for example if I take dry fruits and index the pricing to my pulses, it is a factor of multiple right. So therefore, I don’t think Tata Sampann it is right to look at volume because of the various different categories have been playing. Spices per kilo versus, dry fruits per kilo versus, pulses per kilo. It’s significantly higher. Now what we have said is we will grow Tata Sampann CAGR at 30%. Last quarter we were soft and we had said that we are not worried because we did renegotiate trading terms and normally when you do that you do see a temporary setback. We have grown 37% we are expanding Sampann into new categories, we have gone into Hing for example. We are going into new geographies. We were not in the salt in spices in a significant manner. We’ve gone there, so 30% CAGR, I think you can take it as given.

Sumant Kumar — Motilal Oswal — Analyst

Okay. Thank you so much.

Operator

Thank you. The next question is from the line of Percy Panthaki from IIFL, please go ahead.

Percy Panthaki — IIFL — Analyst

Hi, sir. The NPD percentage of 11% that you mentioned how do you define it? Is it all launches in the last 24 to 36 months? What is the definition exactly here?

Sunil D’Souza — Managing Director and Chief Executive Officer

Yeah, so it’s launches over the last three years, right. You take contribution from revenue over the last three years but just as a perspective, Percy, the significance of launches in the last one year is significantly higher than the last three years and definitely much more than the last two years. So it is more recent launches which are coming up rather than. I’m cycling numbers of the past. And like I said that’s because we are accelerating the pace of innovation we are — this quarter compared to last quarter we have doubled the number of new products launched.

Percy Panthaki — IIFL — Analyst

So this 11% is the revenue contribution number, right?

Sunil D’Souza — Managing Director and Chief Executive Officer

Yeah. All E-commerce.

Percy Panthaki — IIFL — Analyst

Oh, 11% pertains only to e-commerce and not to…

Sunil D’Souza — Managing Director and Chief Executive Officer

That’s correct. No, no 11% — Percy I would — I would give a hand and a leg and everything to get a 11% if I told that number. But unfortunately, it is not right. So there, I mean our target is to exit this year at a 3.5% to a 3.8% of sales total.

Percy Panthaki — IIFL — Analyst

At a total portfolio level?

Sunil D’Souza — Managing Director and Chief Executive Officer

That’s, correct. The benchmark for us is we should be getting to a 5%. If you remember when we started FY ’20, we closed at a 0.9 from there we made significant progress, almost doubling every year. So this year the target is to exit at 3.5% plus.

Percy Panthaki — IIFL — Analyst

Understood. The next question is on the margins this quarter you reported a margin of about 13% on a consolidated level, so just wanted to understand what are the pluses and minuses which are likely to occur over the next couple of quarters and do we see like a sharp jump from this level in the next quarter itself or it’s going to be a very gradual kind of recovery from the 13%?

Sunil D’Souza — Managing Director and Chief Executive Officer

So Percy if we were able to predict it, I think we would be in a fantastic position, you have see what is happening to people who cannot predict right, so anyway, the thing — for the Indian market, I would say the variables our volume growth coming back into tea. That’s, number-one. I wouldn’t worry about salt traction. I wouldn’t worry about Sampann which has the big drivers. I wouldn’t worry about RTD. I wouldn’t worry about Starbucks.

Internationally as I said there are multiple factors in play. The biggest thing is currency movements because remember tea is bought in U.S. dollars in Kenya or Kenya but then there is an actual transaction impact when we sell-in the U.K. so that is one-piece, Canada also rose up to the U.K. so that that’s one-piece and the power to the Rupee when I translated into immediate revenue that is becoming an issue. U.S. dollar, help me in terms of revenue for the U.S. Sum total, inflation in the international markets and therefore impact on the categories and demand, number-one. Number two currency movements and our ability to make sure that the impact on the P&L is negligible. And number three is making sure that we are taking pricing in-line with all these moments to make sure we’re maintaining margins is the most critical piece.

Now just as a perspective. The one thing, I’m not worried about at least when I look at the business right now is market shares. It’s more industry factors which are worried about because like I said in the U.K. now we become the number three brand and in the U.S. we continue to hold and gain share in K-Cups.

Percy Panthaki — IIFL — Analyst

Right, so if my calculations are right the international margins being under pressure this quarter the larger part of that problem is not the Europe business but the Eight o’clock Coffee business right? So if you can give some idea as to what really happened there why margins there were under pressure?

Sunil D’Souza — Managing Director and Chief Executive Officer

No, so actually Percy, it’s a matter of both right, it was currency, inflation, softer, demand. U.K. was primarily softer volume and therefore the relevant pressure on the P&L and a bit of inflation. The U.S. was more about coffee prices as I said coffee prices have gone up steeply, we had we do hedge, as those hedges come up for renewal we have to hedge newer range and some of those costs are retouched [Phonetic] and therefore we need to take pricing both in the U.S. and U.K. we are taking pricing. U.S. it is already underway. U.K. has got announced, but to your point are we out-of-the woods? Probably not, this quarter it’s still a choppy quarter in terms of all these moving parts in international and in India we do need to see demand coming back consistently before we can declare that now it is whole-selling. So I would give it at least a quarter before making a call.

Percy Panthaki — IIFL — Analyst

Understood, understood. That’s all from me thanks and all the best sir.

Operator

Thank you. [Operator Instructions] Next question is from the line of Palak Shah from Infina Finance, please go ahead.

Palak Shah — Infina Finance — Analyst

Hi, Sunil, thank you for taking my question, just firstly wanted to cover point that you mentioned before overall cost of cup for tea consumption that you listed in Q1 and just further in to three [Indecipherable]. Do you see the volume growth in this part of softer base will come back strongly in Q3 and Q4.

Sunil D’Souza — Managing Director and Chief Executive Officer

Sorry, Sorry, I’m not sure I got the questions.

Palak Shah — Infina Finance — Analyst

In the last quarter one of your peers mentioned that the cost of tea consumption is per cup and [Indecipherable] actually inched up because the tea prices were high, even the milk and sugar prices has inched up. That inflation has continued and eventually in-quarter and in fact built-up on that. So do you foresee the volumes coming back-in Q3 and Q4?

Sunil D’Souza — Managing Director and Chief Executive Officer

So. I would not try to go as much as the cost of whole price of tea cup, because you remember the alternate beverages are coffee which is again, it’s milk and sugar, so I would be more focused on fundamentals tea prices and the value that they are giving to the consumer in terms of the deal that we are selling here. In fact this just translates into end cup. We are seeing stress out there. As I said the stress is very specifically in rural, semi-urban it is very specifically in the lower-end up my portfolio and we do need to see those geographies and that part of the portfolio come back. As I said that right now the hypothesis is given that it’s been a good monsoon. Yes it’s probably been an overtly good monsoon. Probably at the wrong time overtly good, that’s what I hear but that it’s been a good monsoon, a: MSPs are good and festive — this is the first festive season where there are no restrictions. We do expect to see some sort of normalcy come back, but as I said. I would still wait for one quarter to declare that — I mean, everything is back to normal and growth has come back.

Palak Shah — Infina Finance — Analyst

Got it. Just one more on the soil side the input inflation has it moderated on a sequential basis because we are hearing that the [Indecipherable] prices actually inched up because of unseasonal and heavy rainfalls.

Sunil D’Souza — Managing Director and Chief Executive Officer

Actually speaking. I think if you look at the distribution of rainfall, it is deficit in the areas where it should be deficit which is primarily in the salt basins in Gujarat so hopefully, brine prices will hold. We will know that in a couple of months. But the problem is the cost of energy, which is required to convert brine into salt. It is the critical piece, so two components at work here, one is the cost of coal and because it’s imported in the foreign exchange. And while overall crude prices have moderated and therefore what I’m hearing is overall the pressure on-demand for coal is starting to moderate, I think there will be depreciation doesn’t help. So we’re watching that closely. But I’ll go back to the fact that we have taken aggressive price increases, make sure that our execution matches up and therefore we have held up share on salt.

Palak Shah — Infina Finance — Analyst

Correct. Got it. Those are the questions from my side.

Sunil D’Souza — Managing Director and Chief Executive Officer

Just a point that I would want to make is, you know for me the two important factors in judging the health of any business long term. One is market-share and the second one is margin. The reason why this market-share is, I mean I don’t control the industry. Industry can go up-and-down for example in tea whether it’s in India or the U.K. or U.S. wherever and when the industry does come back we will come back strongly. We are in the staples business, [Indecipherable] it will come back. So we will come back very strongly and volume growth will come back. Margin important because when we come back, we’re making sure that they’re making the same amount of money that we were making when there was pressure mounting so these are the two factors that I would look at. So and every single business which I look at, the market-share and margin seems to be on a good wicket in India. Internationally market-share is what [Indecipherable] margin is not and that’s why we are taking pricing actions to make sure we put them back.

Palak Shah — Infina Finance — Analyst

Got it. Thanks, thanks for the detailed answer Sunil and wish all of you have a happy Diwali and a New Year.

Operator

Thank you. The next question is from the line of Amit Purohit from Elara Capital, please go ahead. Thank you for the opportunity. Sir, if you could just share some data points on the rural versus urban growth trends that you indicated in your outlook as well. What has been — what you have witnessed in the Q2 and Q1 quarter still now.

Sunil D’Souza — Managing Director and Chief Executive Officer

So sir, we would be probably the wrong benchmark to look at rural versus urban because we have consistently maintained that over the last 24 months or so while we have built or rebuilt a distribution system. We are good on urban side, metros and urban. Our gaps in the semi-urban and rural. We are building out semi-urban and rural. And therefore our growth in semi-urban and rural are far healthier than urban but that’s not the story for the industry. The catch is we did expect the industry to be on faster wicket in semi-urban and rural and that is what is throwing us down.

Amit Purohit — Elara Capital — Analyst

Okay, and what would be our mix fleet in terms of semi-urban and rural lenders are?

Sunil D’Souza — Managing Director and Chief Executive Officer

This right now will be roughly, I’m just giving you a ballpark number it will be two-third urban and one-third rural.

Amit Purohit — Elara Capital — Analyst

Okay, okay and also wanted to understand your initiatives in the south [Indecipherable] regions and also your salt brand, Shuddh. Just to complete, I mean to [Indecipherable] solar-based? How has been the response from the consumer side? And just if you could throw some light on that because we were looking to build that to, I mean to tag along other categories as well so just if you could throw some insights on that.

Sunil D’Souza — Managing Director and Chief Executive Officer

So yes absolutely right. Shuddh was a brand which was launched in the South very specifically if you take the southern market other than Tamil Nadu, of AP, Karnataka, and Telangana. The consumer is — and of course a significant extent in Kerala as well. The consumer is used to solar salt and therefore when we put in vacuum-evaporated salt, the answer that we get is, this is not my salt, from the home maker or the person who is using the actual salt and therefore we have launched Shuddh by Tata Salt. We had launched it about I think just about a quarter ago. We have launched it in the states of Andhra and Telangana and we’ve had significant learnings out that while the product itself scores a win against all competitors bar none, the catch is we’ve had learnings on the packaging and the queues on the packaging. We are right now working to do — as we rolled it out from this pilot budget, as we roll it out we will be modifying the packaging both the way it looks and the size and scale of the packaging so it denotes a much more premium image. In the next probably 30 to 60 days or so, we will be rolling it out because we’re confident now that we’ve learned to the consumer reacts to. I think we’ve got the entire formula in-place to make a success out of it.

Amit Purohit — Elara Capital — Analyst

Okay, thanks, and sir lastly if you could share, I know, I mean these are uncertain times especially on the international market on the currency but would this pricing actions that you have taken-up would help you to at least reach the double-digit EBITDA — EBIT margins but maybe Q4 or so is that a possibility or you would just [Indecipherable] what’s kind of a?

Sunil D’Souza — Managing Director and Chief Executive Officer

So just as a perspective in the U.S. market if I’m not mistaken from about September of 21 onwards, we have taken about a 22% price increase already. And we thought that was good enough for us to negate any commodity/currency action. Now that’s obviously not the case so we are doing one more round-off by price — packaging led pricing if I may put it that way. In the U.K. as well we had taken a 7% price increase which at that point of time looked like it was good enough to get us through, but obviously not, so we’ve announced a very-very significant double-digit price increase already in the market. The only issue is that it takes — there is a roughly 90-day notice period to trade there and, then of course there are games with the retailers among themselves before the pricing lands. So, I would say you would see that pricing land firmly only in Q4 and the intent is to make sure that both the businesses get back into a double-digit. But here’s the thing between now and then your guess is as good as mine as to how inflation plays out, how costs plays out and where the pound goes and where the dollar goes.

Amit Purohit — Elara Capital — Analyst

Okay and —

Sunil D’Souza — Managing Director and Chief Executive Officer

Just another other piece is, the larger other piece is we have also — given the fact that it is uncertain times we have looked at our entire cost structure in the international piece and we’ve got a full-fledged roadmap on cost — structure and cost restructuring. We’ve already actioned part of it, there has been already a — we have got it ensuring, offshoring, outsourcing, whatever so we’ve got in house offshore, back-office at Bangalore, where we’ve already started pulling work from the international markets. But there will be a Phase-II which will look at all different other costs in the systems to, figure out how we can make it into a much more leaner machine and to the point, delivering significant double-digit EBIT growth.

Amit Purohit — Elara Capital — Analyst

Okay, thanks sir just one follow-up, does these pricing action puts us any on a disadvantageous position versus competition or this is just [Indecipherable] trend?

Sunil D’Souza — Managing Director and Chief Executive Officer

Everyone buys tea from Kenya. All tea Kenya is priced in dollars. All the guys in U.K. sell it in pounds. So I guess all of us are in the same boat.

Amit Purohit — Elara Capital — Analyst

Okay, okay, thanks — thank you so much. And wish you a Happy Diwali, sir thanks.

Operator

Thank you. Ladies and gentlemen in order to ensure that the management is able to address questions from all participants in the conference please limit your questions to two per participant, should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Mihir Shah [Phonetic] from Nomura, please go ahead.

Unidentified Participant — — Analyst

Hi sir, thank you for taking my question, can you talk a bit more about the timelines and any indicative synergy benefits from the simplification exercises that we called out last year on the international business and Tata Coffee? So that’s my only question.

Sunil D’Souza — Managing Director and Chief Executive Officer

Yeah, so there were two parts of the simplification one was the India leg and one was the international leg. And they are also in a sense interdependent. On the India leg we had applied for NCLT to demerge the extractions business and merge it into Tata Consumer and roll in the plantations business into a wholly-owned subsidiary of Tata Coffee. So both the companies had applied for NCLT. For Tata Consumer which is NCLT at Kolkata we have got the date of November 12th which is NCLT hearing. We are still awaiting the from NCLT Bangalore for Tata Coffee post which I think the whole thing — I mean, your guess is as good as mine as to when that comes through but — but assuming it comes through in the next 30 days or so, I would say, give it 90 to 120 days to be fully actionable. So it is the [Indecipherable] we are just waiting for the requisite approvals.

On the international there were two pieces two significant pieces. Number one, was we were swapping [Indecipherable] which is Tata Company from our U.K. parent holding company into India shares for which we had requested for approvals. We’ve got them and we will be actioning that, so we will be moving all minority holdings from our U.K. holding company through which we will start the simplification process. The only catch in the international simplification process, the big piece is the Eight o’clock Coffee for which we need the Tata Coffee NCLT to go through before auctioning it. But as of now, everything is on track. It’s just a matter of getting the proper approvals so that it becomes present triggers.

Unidentified Participant — — Analyst

Got it, thank you. Ballpark understanding of being EPS accretive about 3% to 4% would be a fair understanding, sir?

Sunil D’Souza — Managing Director and Chief Executive Officer

Absolutely. I mean the objective is that there is a: significant amount of cost and a dividend and tax optimization that is possible because of which it will be EPS accretive.

Unidentified Participant — — Analyst

Got it, thank you so much. That’s all from my side.

Nidhi Verma — Investor Relations and Corporate Communications

Moderator can you just go to the webcast now and take a couple of questions from there of before returning to this okay.

Operator

Sure.

Nidhi Verma — Investor Relations and Corporate Communications

So Sunil there is a question from Chanchal, he is asking given the cash position in book and speed-to-market by acquiring good-quality assets any thought on the same and second question is also on pulses sourcing how far are we in that bucket?

Sunil D’Souza — Managing Director and Chief Executive Officer

So let me answer the second question on pulses sourcing. I think Chanchal like I said we have rejigged our entire system including injecting new talent. And we’ve seen very — very good moment basis the actions that we’ve taken but, very early days. On top of that, we are right now building entire digital engine in our key procurement business which we will be leveraging but other commodities, including pulses. So we feel good about where we are, it’s just that we need to see a few quarters of consistency because we say we are good, right. So that’s number one.

Cash position in [Indecipherable] and good-quality assets Chanchal if you have anything in mind do let me know. I’m also on the lookout. The catch is as they have consistently maintained we will not be in a hurry for anything. We will be very-very focused on making sure the financial metrics and the strategic screens both pass before we get it through. There are multiple discussions always ongoing Tata Consumer in fact in the early part of the integration, we have beefed up our figital teams our R&D teams and our sales teams. We are off-late bolstered up M&A and strategy teams as well. We look at multiple things at the same time and the ongoing discussions. But yeah, I wouldn’t put timeline, I wouldn’t put a target because we want to make sure we are creating value.

Nidhi Verma — Investor Relations and Corporate Communications

Okay thanks, Sunil and the next question is from Saurav. He is asking among the growth categories, how do we create synergies and distribution marketing strategies etcetera given that the products are two different ends of the spectrum. On one hand we have deeply penetrated categories like pulses, spices, etcetera but no brands and on the other hand we have the RTE’s, plant-based meat, NourishCo, Gluco Plus etcetera where market is at [Indecipherable] for every segment.

Sunil D’Souza — Managing Director and Chief Executive Officer

So, they [Indecipherable] this way. It’s not that we get synergies in everything across all the categories that we play in. So ready-to-drink is a seperate vertical in terms of whether it is manufacturing or it is distribution it is distinctly different from the other categories that we play in and, therefore, we’re building it separately. It is a completely asset-light model because it is co-manufacturers manufacturing at the backend and distributers manufacturing at the front-end. The value we add is in terms of R&D and products, marketing, and strategies. And so far, doing very well like I said we’ve right now growing at about 64%. I think even calculating for the COVID lockdowns and the time lost for us to scale it up we are still I think, north of 50 CAGR, so it is in a very very good place. All the other products there is significant amount of synergies because only thing is you have to dissect it, for example whether it is plant-based meat or protein. I will not be selling it in every kirana store and every outlet so there is immense amount of synergy in modern trade, E-commerce also on D2C. So that is where we’re focusing. It is the same team which is handling it and given the fact that it is modern trade our e-commerce, bandwidth is not an issue for the team to deal with.

At the front-end on — when it comes down to product distributed in kirana stores, there is immense amount of synergy for example whether it is Sampann, RTE also to an extent in what we call these HAMP standalone modern trade and higher-end grocery sized Kirana stores. Given the fact that are completely digitized on our distribution system, we have the ability to make sure with a strict distribution where we wanted and open distribution we wanted so that’s the way we played. The only thing we are going to be mindful and we are right now running a few pilots in a few places. As our portfolio expires you’ve got to make sure that the salesmen doesn’t become a bottleneck with too many products to sell. So we are looking at how do we create extra bandwidth there either through geographical segmentation or through portfolio segmentation and looking at straight crowds, big geographies on those kind of things, that have a pilot running which we will take a call because we will grow on our portfolio, and we will try to leverage synergies but they’ve got to make sure that we continue to keep the bandwidth going.

Nidhi Verma — Investor Relations and Corporate Communications

Okay thanks and then the second question from him is why is Sampann has a strong proposition of purity and is associated with not process pulses, does launch of RTE products which are essentially processed food can impact the essence of Sampann as brand?

Sunil D’Souza — Managing Director and Chief Executive Officer

It is absolutely right. So the whole thing is Sarvagun Sampann and we will preserve the goodness. Now just as a perspective it’s a misnomer that RTE doesn’t contain nutrition and it is full of preservatives. Most of our SKUs do not have in RTE do not have added preservatives, colors or flavors. They are good sources of protein and fiber. And Sampann is the endorser brand. It’s not the main brand, like I said in India it is young site which is the brand. The region it is like it is almost from the house of Sampann so to speak which gives us an easier entry into the consumer minds and therefore the kitchens.

Nidhi Verma — Investor Relations and Corporate Communications

Okay, thanks Sunil with that we just quickly go back to the Q&A queue to see if there are any pending questions.

Operator

We’ll take the next question from the line of Darshil Pandya from [Indecipherable]. Please go ahead.

Unidentified Participant — — Analyst

Hello sir. First of all congratulations on the number you have been doing good. Sir I have no one of the questions was already answered regarding this Tata Sampann along side so even I was bit skeptical about how things will be because, we are seeing reviews but, I’ll definitely try this new product, which the Tata has launched. The second question was on the, you know this is the [Indecipherable] which the company has introduced. So where do you see you know, you see us penetrating high in the market in the next few quarters or year?

Sunil D’Souza — Managing Director and Chief Executive Officer

GoFit here the thing, I mean we have defined protein as a platform which we will focus on. We did [Indecipherable] Tata Simply Better which is alternate meat and we will be expanding the portfolio on Tata Simply Better to more products which are probably beyond protein as well. Simply better products per se. And then we have launched the supplement range. We have made our first foray with GoFit. The idea of GoFit is to I would say, I will use the phrase called launch and run. If we put it out there in the market, it is positioned at women, which is a white space, there is no other product which is positioned at women. It is not probiotics which helps in easy easy digestion. So very-very early days. I would reserve any judgment on where we want to take it, how far it can go, what is the expansion that is possible for some time before we see because — because remember this is a completely new category for us. We are also learning. Once we have a firm handle then we will achieve how to play this category.

The reason we have got impaired is because protein is a big trend globally and will become a big trend in India. While we missed the boat on many other categories, we want to make sure that we do have — not exactly but of course more advantage in this category.

Unidentified Participant — — Analyst

And sir the second question is on the exceptional item which we have seen around INR147 crores from the sale of land. Can you please give me some more light on that transaction or something, because you know it’s quite a one of the items where we don’t see it more openly, so what is it, if you can please tell me?

Sunil D’Souza — Managing Director and Chief Executive Officer

So this is emanating from Tata Coffee. This was a disputed land around Hyderabad which has been in dispute. It emanates from transaction which Tata Coffee back made years back because and that has been under litigation for a long, long-time. The more practical and value generation was from selling the land, which was sold and the recognization. That’s about it.

Unidentified Participant — — Analyst

All right and sir the very last question, do you have any other product pipeline of which maybe it could be chips, premium chips, or biscuits or something you’re are looking at.

Sunil D’Souza — Managing Director and Chief Executive Officer

So we have defined snacks as one of the platforms that we will have in mini meals, breakfast and snacking. But I do not thing at least and I’m shooting off the cup [Phonetic] here, I do not think we’re going to get into chips, we are not going to get into bhujia, we are not going to get into kurkure equivalent. We have to figure out our own strategy on stacking to make sure that we are creating a space which is not competitive where we have a right to win which has got decent margins. We have the ability to scale it. It is a category which is growing fast. It’s work in process, we do not have an answer but yes snacking as occasions will continue to grow and therefore we wanted to play in it. I don’t think they will be playing in it with chips or bhujia

Unidentified Participant — — Analyst

Right, sir. So that’s all — that’s all I wanted to ask sir. Many congratulations and wishing you and your whole team a very Happy Diwali and I hope you guys keep performing well.

Sunil D’Souza — Managing Director and Chief Executive Officer

Thank you.

Unidentified Participant — — Analyst

Thank you, sir.

Operator

Thank you, very much. As there are no further questions from the participants, I would now like to hand the conference over to Mrs. Nidhi for closing comments.

Nidhi Verma — Investor Relations and Corporate Communications

Yes. I would just like to thank everyone for taking the time on behalf of the management and wish you all on a great festive season ahead and see you all during the next call, thank you.

Operator

[Operator Closing Remarks]