scorecardresearchTata Consumer Products and Tata Coffee merger: What does this mean for investors?
Tata Coffee Limited's plantation operations will be demerged into TCPL Beverages & Foods (TBFL)
Tata Coffee Limited's plantation operations will be demerged into TCPL Beverages & Foods (TBFL)

Tata Consumer Products and Tata Coffee merger: What does this mean for investors?

Updated: 30 Mar 2022, 01:29 PM IST
TL;DR.

Tata Coffee produces between 8,000-10,000 tonnes of shade-grown Arabica and Robusta Coffee at its 19 estates in South India. It exports Green Coffee to countries in Europe, Asia, the Middle East and North America.

Tata Consumer Products Ltd (TCPL) said on Tuesday that it will merge all of Tata Coffee Ltd's businesses with itself as part of a reorganisation plan aimed at unleashing synergies and economies.

In a regulatory filing, the company said that while the plantation business of TCL will be demerged into TCPL’s wholly-owned arm TCPL Beverages & Foods (TBFL), the remaining business of TCL, consisting of its extraction and branded coffee business, will be merged with TCPL.

De- merger

Tata Coffee Limited's plantation operations will be demerged into TCPL Beverages & Foods (TBFL)

Merger 

Tata Coffee Limited's remaining operations, including extraction and branded coffee, will be merged with TCPL

The demerger would happen as the first step and the merger as the immediate second step, with both being proposed through a composite scheme of the arrangement, the filing said.

These actions contribute to TCPL's goal of becoming a future-ready organisation and will serve as a stepping stone to further simplification. These will also lead to operational efficiencies, faster decision making and execution, the formation of focused business verticals, and the realisation of potential synergies.

Share Swap

Under the scheme, shareholders of TCL (other than TCPL) will receive an aggregate of 3 equity shares of TCPL for every 10 equity shares held by them in TCL.

This will be carried out through the issuance of 1 equity share of TCPL for every 22 equity shares of TCL in consideration for the demerger.

For the merger, 14 equity shares of TCPL will be issued for every 55 equity shares of TCL, it added.

“Through this transaction, TCL shareholders will get access to multiple growth engines and participation in a larger and fast-growing FMCG business. TCPL shareholders are expected to benefit from better synergies and business efficiencies going forward,” the company said.

The boards of directors of TCPL and TCL, at their respective meetings held on Tuesday, approved the combination of the plantation business of TCL with TBFL, the statement said.

“This will enable the consolidation and 100% ownership of the branded, extractions and plantations business of TCL into TCPL and its wholly-owned subsidiary,” it said.

TCPL further said that it proposes to purchase a minority interest in its UK subsidiary – Tata Consumer Products UK – by way of a share-swap deal, through a preferential issue of its equity shares.

“The transactions will result in TCPL having 100% ownership of the business of TCL and of TCP UK, which will be an enabler for efficient reorganisation initiatives of its international business,” the statement said.

“The restructuring initiative is in line with Tata Consumer Products’ strategic priorities - to unlock synergies and create a future ready organisation. This exercise will enable us to better leverage our supply chain, create customer focused business verticals, and accelerate decision making & execution. This will be a stepping-stone for further simplification initiatives with a view to achieving recurring operational, administrative and financial synergies”, said Sunil D’Souza, MD & CEO at TCPL.

As on December 2021, TCPL holds a 57.48% stake in TCL.

Tata Coffee's Financials

Tata Coffee Ltd posted a 38.42 per cent jump in consolidated net profit at 69.46 crore in the three months ended December 2021.Net revenue has increased on a consolidated basis by 17.51 per cent to 626.07 crore in the third quarter of this fiscal. In the year-ago period, the same stood at 532.76 crore.

Financials (rs cr)  2021202020192018
Total Revenue 2,289.431,988.361,822.411,589.35
Total Expenditure 1,865.591,647.121,560.801,303.09
EBITDA 389.36318.94243.18264.23
EBIT 306.58238.30186.19209.32
Profit Before Tax 284.33200.07170.09185.94
Profit after tax  211.55141.01106.89187.00

The company produces between 8,000-10,000 tonnes of shade-grown Arabica and Robusta Coffee at its 19 estates in South India. It exports Green Coffee to countries in Europe, Asia, the Middle East and North America.

The company is also the largest corporate producer of pepper in India.

Chandrasekaran’s Restructuring plans

Tata Group plans to bring its consumer business under one unit as Tata Sons Natarajan Chandrasekaran continues with a business restructuring to simplify India’s largest group.

After taking charge on 21 February, Chandrasekaran hit the ground running. He had his “to-do list" ready even before he entered the corner office at Bombay House. He started off by giving his stamp of approval to a legal settlement with Japanese partner NTT DoCoMo in his first board meeting.

The Tata group is looking to drastically prune the number of companies in its portfolio and take tough calls on non-performing, debt-laden firms and bring greater financial discipline, Chandrasekaran told CNBC-TV18 in an interview.

The plan that involves rationalization of the portfolio from the current 110 to a maximum of up to five, six or seven will help the 150-year-old conglomerate.

“The Group under Chandrasekaran seems to be working towards better capital allocation by consolidating their myriad businesses. This should hopefully deliver greater shareholder returns in future," said Shriram Subramanian, co-founder and managing director of proxy advisory firm InGovern Research.

Tata Teleservices Limited (TTSL) and Tata Teleservices (Maharashtra) Limited (TTML) merged their consumer mobile businesses into Bharti Airtel Limited and Bharti Hexacom Limited in July 2019. (Airtel).

In May 2021, the consumer products business of Tata Chemicals has merged with Tata Global Beverages, the company was renamed TCPL and now owns brands like TATA Salt, TATA Tea, Tetley, Eight O'clock, Himalayan Water, Tata Water Plus, and Tata Gluco Plus.

Its foods portfolio includes brands such as Tata Salt, Tata Sampann, Tata Soulful, and Tata Q.

Tata Tea is the biggest-selling tea brand in India, Tetley is the biggest-selling tea brand in Canada and the second-biggest-selling in the United Kingdom and United States

The Tata group firm aspires to be a formidable player in the FMCG category, by expanding its play into the existing category and venturing into new areas.

TCPL has a reach of over 200 million households and has an annual turnover of 11,600 crore with operations in India and International markets.

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First Published: 30 Mar 2022, 01:29 PM IST