Tata Consumer Products (TCPL) will see some short-term costs on account of its restructuring, but would create an efficient and effective business in the long run, Sunil D’Souza, MD and CEO, said in an analyst call after the earnings announcement for the June quarter.
TCPL is reorganising its businesses to simplify the structure and reduce the number of legal entities. This is in order to create focused verticals, enable faster execution, and unlock significant financial value.
As part of the exercise, the company is restructuring to combine Tata Coffee’s business into Tata Consumer and its wholly-owned subsidiary and purchase a non-controlling interest in Tata Consumer UK Group through a preferential issue of equity shares.
During the year, TCPL announced the reorganisation plan with two key steps, which included composite scheme of arrangement with Tata Coffee and the purchase of non-controlling interest held by Tata Enterprises Overseas AG (TEO) in Tata Consumer Products UK Group Ltd (TCP UK) — its subsidiary in UK.
The composite scheme of arrangement includes the demerger of the company’s plantation business, Tata Coffee into TCPL Beverages & Foods — a newly formed wholly-owned subsidiary of Tata Consumer. The second part of the restructuring includes the merger of the remaining business of TCL, comprising its extraction and branded coffee business, with TCPL.
Additionally, the company proposes to purchase by way of a share swap through a preferential issue of its equity shares. Currently, TCPL holds 89.85% of the share capital of TCP UK, and the balance 10.15% stake is held by TEO. Through this transaction, the company intends to purchase this non-controlling interest and the purchase consideration is to be paid through the preferential allotment of shares of Tata Consumer to TEO, based on an independent valuation by a registered valuer and subject to other regulatory approvals.
“In the past year, restructuring costs have risen because we had cut down layers in our teams. We acquired some of the businesses and rejigged the teams to make sure we are deriving synergies. So, while long term you will derive synergies, there will be some short-term restructuring costs to make sure the business is right-sized,” D’Souza told analysts.
“The picture is yet to be played out in terms of Tata Coffee’s Indian and international restructuring. We have still not executed fully, because we don’t have full regulatory approvals. But I can assure you that this is to right-size, and make the business much more effective and efficient,” D’Souza added.