Chandra's strategy to drive synergies: Tata Chemicals to distil consumer foods into TGBL

Tata Chemicals will transfer its consumer foods division including salt, pulses and spices to Tata Global Beverages, the world’s second-largest tea company, as part of group chairman N Chandrasekaran’s strategy to consolidate and drive synergies from similar businesses.

The deal, valued at about Rs 5,000 crore, is expected to be completed in April next year and Tata Global Beverages (TGBL) will be renamed Tata Consumer Products to sell a host of packaged staples.

Tata Chemicals shareholders will get 114 equity shares of Tata Global Beverages for every 100 shares that they hold.

Tata Chemicals, the world’s third-largest producer of soda ash, gets Rs 1,847 crore, or almost 16% of its revenue, from the division being demerged, which controls more than half the country’s organised salt market.

Chandra Trying to Reduce Overlaps
Tata Global Beverages owns brands including Tetley, Eight O’Clock coffee and Himalayan natural mineral water. It is the country’s second-largest tea company after Hindustan Unilever.

Tata Consumer Products will have an annual turnover of Rs 9,099 crore and Ebitda of Rs 1,154 crore for the year ended March 31, 2019, on a proforma basis.

“Tata Consumer Products consolidates our current presence in food and beverages in the fast-growing consumer sector. Through this combination, we have created a strong growth platform to meet the growing aspirations of Indian consumers,” Chandrasekaran said in a statement.

Chandrasekaran is trying to reduce overlaps between group companies and consolidate businesses that share synergies and adjacency within the conglomerate.

The modalities of the merger have been long drawn out in the group’s foods and beverages businesses and ET had first reported it on September 3, 2018.

After Chandrasekaran took over as chairman of Tata Sons in February 2017, the group sold its telecom business to Bharti Airtel in October 2017 and merged its aerospace and defence business under one entity last year.

The latest transaction is also an attempt to create a bigger fast-moving consumer goods company as part of the group’s India-focus strategy. “Separately, the food entity as part of Tata Chemicals would not have managed enough scale. That needs focussed FMCG marketing and distribution. Additionally, TGBL will have a larger portfolio to offer FMCG dealers and get better deals. Now the real challenge will be in its execution and the aggression that follows,” said a Tata director aware of the development.

TGBL has been reworking its organisational structure and shifting its back office and technologyrelated work back to India. The Indian market contributes to 45% of the company’s business.

“It’s a good deal on paper but execution is the key. TGBL has been a laggard compared with other companies in terms of distribution expansion and innovation,” said Abneesh Roy, senior vice president at Edelweiss Securities. “On the positive side, TGBL’s new portfolio will be less dependent on seasonality and will also have more bargaining power in trade with a wider product range.”

TGBL’s direct reach is 700,000 outlets and total reach is 2 million outlets compared with HUL’s almost 8 million stores.

The food market in India is pegged at Rs 6 lakh crore. Tata Consumer Products will operate in categories that are largely controlled by unbranded or unorganised entities, including local kiranawallahs.

TGBL’s India business witnessed a volume growth of 12% last quarter, while the US coffee business declined 7% and UK sales grew 4%.

Tata Global Beverages and Starbucks Corporation jointly own and operate Starbucks outlets in India.

Source:-https://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/chandras-strategy-to-drive-synergies-tata-chemicals-to-distil-consumer-foods-into-tgbl/69350948